COMMISSION STAFF WORKING DOCUMENT Single Market Performance Report 2019 Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank Annual Sustainable Growth Strategy 2020
Date: 2019-12-17
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, EU growth strategy, Economic and Monetary Union, adaptation to climate change, competitiveness, economic reform, environmental policy, social development, sustainable development, technological change

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.12.2019  SWD(2019) 444 final  COMMISSION STAFF WORKING DOCUMENT  Single Market Performance Report 2019   Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank Annual Sustainable Growth Strategy 2020      {COM(2019) 650 final}  
 
 
Contents 

EXECUTIVE SUMMARY .................................................................................................................. 2 

1. INTRODUCTION ............................................................................................................................. 5 

2. GOODS AND SERVICES MARKETS .......................................................................................... 7 

a. GOODS MARKETS ........................................................................................................................ 7 

b. SERVICES MARKETS ................................................................................................................. 13 

c. EFFECTIVE COMPETITION ....................................................................................................... 24 

3. SPECIFIC MARKET ISSUES ...................................................................................................... 28 

a. ENERGY, INFRASTRUCTURE AND ENVIRONMENT .................................................................. 28 

b. PUBLIC PROCUREMENT ........................................................................................................... 39 

c. DIGITAL MARKETS ................................................................................................................... 45 

d. CAPITAL MARKETS .................................................................................................................. 53 

CONCLUSIONS ................................................................................................................................. 59 

1 

 
 
 
 
 
 
 
EXECUTIVE SUMMARY 

The  Single  Market  ranks  at  the  top  among  the  greatest  accomplishments  of  European 
integration. For over 25 years, it has been delivering growth, jobs, legal certainty to business, a wide 
choice  of  safe  products  to  consumers  and  guaranteeing  the  free  movement  to  EU  citizens  in  the 
Member  States.  It  is  part  of  our  daily  life,  interweaving  the  activities  of  businesses  and  consumers 
across borders. The Single Market and its benefits should not be taken for granted: without the Single 
Market, the EU GDP would be 8.5 percent lower than it is today.  

The Single Market plays a central role in giving a response to the new challenges that the EU is 
confronting.  Revitalising  Europe’s  competitiveness,  providing  solutions  to  the  environmental  and 
climate  change  objectives,  speeding  up  the  adoption  of  new  technologies,  maintaining  financial 
stability, ensuring the safety and rights of citizens in an environment of demographic change are all 
major  challenges to  which  the  Single  Market is  already  responding. The  Capital  Market  Union,  the 
Digital  Single  Market  and  the  Energy  Union  have  joined  Single  Market  policies  in  goods,  services 
and  public  procurement  markets operating  for  over  25  years to provide  effective  responses  to  these 
new challenges. 

In these times of change, it is important to ensure that the Single Market performs at its best. 
We  have  to  provide  effective  responses  to  these  challenges.  Given  the  importance  of  the  issues  at 
stake nowadays, the cost of a suboptimal performance of the Single Market is higher than ever before. 
The performance of the Single Market must be improved because it cannot fall short of citizens’ and 
businesses’ needs and expectations.   

The Single Market has a very important international dimension. It provides a highly competitive 
environment to firms from all EU Member States to compete in world markets. It is the most highly 
integrated  economic  area  in  the  world  allowing  firms  to  specialise  in  different  segments  of  global 
value  chain.  In  addition,  it  provides  a  stable  and  predictable  environment  for  businesses  that  can 
provide  a  safe  harbour  to  carry  out  operations  internally  and  across  the  globe.  The  convergence 
towards  common  technical  norms  and  market  practices,  the  shared  technological  base  and  the  free 
movement of capital, goods and services contributes to increase productivity by lowering input costs 
and fostering innovation. Last but not least, the size and importance of the Single Market give Europe 
a high profile and influence on global issues such as climate protection and the respect of the rule of 
law and human rights. 

This report highlights the importance of structural reforms at a Member State level for a good 
performance  of  the  Single  Market. There is significant scope  for  improvement  in the compliance 
with  and  application  of  Single  Market  legislation,  not  just  in  services  but  also  in  goods  markets. 
However, even if markets are opened to cross-border trade and investment, consumers will not enjoy 
lower  prices  and  and  businesses  will  not  be  able to  benefit  fully  from  new  opportunities if  markets 
remain closed to competition by market power, smothered by disproportionate regulations, isolated by 
insufficient  energy  or  transport  infrastructures,  segmented  by  obstacles  to  the  recognition  of 
qualifications or hampered by insufficient investments in upskilling and reskilling. Thus, the delivery 
of benefits to citizens and businesses depends also on structural reforms by Member States.  

The  European  Semester  provides  the  right  framework  to  foster  those  reforms.  The  joint 
consideration of the Single Market performance and structural reforms under the European Semester 
will be mutually beneficial. The two reinforce each other. On one side, improving the functioning of 
the  Single  Market  fosters  the  EU’s  macroeconomic  performance  by  generating  trade,  promoting 
productivity growth, thanks to better resource allocation and economic convergence. These changes 
help to boost internal demand in times of growing uncertainties in export markets. On the other, the 

2 

 
 
 
recommendations of structural reforms made in the context of the Semester contribute to the delivery 
of Single Market benefits by removing market imperfections due to inappropriate national regulations 
and anticompetitive behaviour and improving the business environment.  

The findings of the report can be summarised as follows: 

  Goods markets present a high level of integration.  Intra-EU trade is still growing driven by 
the  impulse  provided  by  the  integration  of  Central  and  Eastern  European  Member  States. 
However, evidence shows that inadequate compliance with Single Market rules and insufficient 
market  supervision  limit  the  benefits  of integration in  terms  of trade, competition,  productivity 
growth and product safety. 

 

 

 

Services markets present the highest potential for further integration. The cross-border trade 
in services markets is lower than that of goods but it is growing. In fact, integration in services is 
greater  than trade  figures  suggest  because the  value-added  contents  of  services  included  in the 
intra-EU  trade  of  manufactured  products  is  increasing.  In  addition,  integration  is  increasing 
thanks to the cross-border establishment of subsidiaries. However, the performance of the Single 
Market  in  services  is  hampered  by  weak  competition  and  unjustified  or  disproportionate 
regulatory restrictions, particularly in some business services, retail and construction. 

In some sectors, weak competition prevents consumers and businesses from reaping the full 
benefits of the Single Market. Increasing market power and concentration are frustrating a part 
of  the  price  reductions  that  integration  should  deliver  to  consumers  and  reducing  businesses’ 
incentives to invest and to innovate.  

Significant  progress  has  been  achieved  in  the  integration  of  energy  markets,  but  cross-
border energy trade and competition in energy markets must be improved Entry barriers in 
electricity generation and different rules for electricity retail markets hinder cross-border energy 
trade.  This  situation  entails  important  economic  costs  to  energy  users,  as  well  as  higher  social 
costs  from  the  foregone  opportunities  to  reduce  CO2  emissions  that  the  Energy  Market  Union 
strives to achieve. 

  Ensuring  high  standards  of  environmental  protection  and  product  safety  is  a  major 
component  of  the  performance  of  the  Single  Market  spanning  over  a  broad  range  of 
economic activities.  For example, Single Market legislation has been successful in reinforcing 
the safety of citizens exposed to chemical substances. Ecodesign and Ecolabeling contribute to 
steering process and product innovations towards increasing environmental protection and better 
informed  consumer  choices.  Better  cooperation  with  authorities  in  Member  states  should  help 
ensure a more even environmental performance across all of the Single Market.  

  At  the  core  of  the  Single  Market,  standardisation  plays  a  key  role  to  further  the  EU 
sustainable development agenda. Standards are essential to steer business towards sustainable 
development  goals  as  they  act  as  bridges  linking  legal  provisions  with  on-the-ground  technical 
practice.  The  adoption  of  EU  standards  has  helped  to  achieve  energy  consumption  reduction 
goals  in  the  eco-design  and  ecolabelling  areas.  Standards  also  have  the  potential  to  contribute 
further to enhance product sustainability and the greening of production processes.  

  The Single Market has gone a long way in integrating public procurement across Europe, 
but  the  performance  in  public  procurement  could  still  be  improved.  Transparency  has 
increased,  especially  since  the  introduction  of  e-procurement.  However,  improvements  in 
transparency  have  not  always  been  followed  by  more  discernible  competition  as  measured  for 

3 

 
 
instance,  by  the  number  of  tenderers  per  call.  The  EU  has  provided  Member  States  with  the 
necessary  rules  and  guidance  to  make  the  best  out  of  public  procurement  practices,  not just  to 
increase  the  quality  of  public  spending  but  also  to  pursue  other  objectives  such  as  green 
innovation and digitalisation. 

  The  Single  Market  is  contributing  significantly  to  the  digitalisation  of  Europe's  economy 
but  its  lasting  performance  requires  the  reinforcement  and  further  development  of  the 
current  EU-wide  digital ecosystem. The  development  of  an integrated  EU-wide  ecosystem  is 
held back by an insufficient and uneven performance on key digitalization drivers, such as digital 
infrastructure, skills and funding for digital ventures. Member States have a crucial role to play in 
putting these elements into play. 

  EU  financial  services  legislation  helped  resume  integration  of  capital  markets  after  the 
setback resulting from the financial crisis and provided better governance to guarantee the 
stability  of  financial  markets.  Despite  significant  progress,  cross-border  competition  and 
market penetration levels remain relatively low. The Capital Market Union offers the potential to 
reach deeper capital market integration across the EU. 

The good performance of the Single Market is a shared responsibility at EU and Member State 
level. These  findings  make  apparent the importance of  reforms  at the  national  level  to optimise  the 
performance  of  the  Single  Market.  Many  of  the  problems  hindering  the  performance  of  the  Single 
Market  are  of  a  general  nature  and  their  impact  is  not  limited  to  cross-border  transaction.  Their 
impacts spill over across national borders. They require structural reforms at national level and that is 
the level at which the Semester can be most effective.  

4 

 
 
 
1. INTRODUCTION 

The  Single  Market  ranks  at  the  top  among  the  greatest  accomplishments  of  European 
integration. For over 25 years, it has been delivering growth, jobs and free movement to EU citizens, 
legal certainty to business and safe products to consumers. It is part of our daily life, interweaving the 
activities of businesses and consumers across borders. The Single Market is the EU’s real economy. 
But the pervasiveness of the Single Market and its benefits should not be taken for granted: deprived 
of a Single Market, the GDP of the EU would be 8.5 % percent1 lower than it is today.  

The Single Market has a very important international dimension. It provides a highly competitive 
environment to firms from all EU Member States to compete in world markets. It is the most highly 
integrated  economic  area  in  the  world  allowing  firms  to  specialise  in  different  segments  of  global 
value  chain.  The  convergence  towards  common  technical  norms  and  market  practices,  the  shared 
technological  base  and  the  free  movement  of  capital,  goods  and  services  contributes  to  increase 
productivity  by  lowering  input  costs  and  fostering  innovation.  Last  but  not  least,  the  size  and 
importance  of  the  Single Market  give  Europe  a  high  profile  and  influence  on global  issues  such  as 
climate protection and the respect of the rule of law and human rights. 

The Single Market is adapting to the new challenges that the EU is facing. Stagnant productivity 
growth,  environmental  and  climate  change  challenges,  demographic  changes,  uncertainties  in 
international  markets  and  the  adoption  of  new  technologies  are  just  some  of  the  issues  requiring  a 
response based on the instruments provided by the Single Market. The Union and the Member States 
must  deliver  the  full  potential  of  the  Single  Market  because  the  cost  of  a  suboptimal  performance 
would much too high in terms of business confidence and citizens’ trust in the European project.  

This report assesses the market performance of the real economy in the Single Market2. In the 
past, monitoring efforts focused mainly on the legal environment of the Single Market to ensure that it 
was properly enforced. This was particularly important in the early stages of the implementation of 
the  Single  Market  and  it  remains  a  necessary  element  in  the  Commission’s  job  of  guardian  of  the 
Treaties.  Nowadays,  the  assessment  of  performance  also  requires  looking  at  impacts  on  the  EU’s  
productivity, competitiveness, sustainability and on the achievement of specific policy goals – besides 
legal compliance. The ability of the Single Market to deliver in this respect does not depend only on 
legal  compliance  but  also  on  broader  policy  measures  and  businesses  environment  conditions, 
undertakings’ conduct and private choices.  

The  European  Semester  can  also  benefit  from  the  monitoring  and  assessment  of  the  Single 
Market performance in various ways. By fostering trade and sustainable growth, the Single Market 
underpins  internal  demand  in the  EU and contributes  to  macroeconomic  performance.  Furthermore, 
the Single Market is a key tool for better allocation of resources and economic convergence among 
Member States. Thus a more integrated and diversified Single Market will also increase the resilience 
of the European economy. The consideration of cross-border activities in the Single Market will also 
help better understand the spill over effects of national policy measures and the impact of structural 
reforms not just at the domestic level but also for the Union as a whole. 

1 See for instance Jan in ‘t Veld  (2019) “Quantifying the Economic Effects of the Single Market in a Structural Macro model”,  European 
Economy, Discussion Paper 094 February 2019. 
2  This  report  complements  the  Report  on  Obstacles  to  the  Single  Market  (to  be  adopted  in  2020)  and  the  Single  Market  Scoreboard 
published every year by the Commission. The former focuses on the assessment of the remaining regulatory and non-regulatory barriers and 
opportunities to the Single Market”. The Single Market Scoreboard gives an indicator-based an overview of the practical management of the 
Single Market (see https://ec.europa.eu/internal_market/scoreboard/). 
[On  22  March  2019,  the  European  Council  (called  for  a  closer  monitoring  of  the  Single  Market  and  the  publication  of  a  report  on  the 
functioning of the Single Market (See at https://data.consilium.europa.eu/doc/document/ST-1-2019-INIT/en/pdf).]   

5 

 
 
 
                                                           
The  European  Semester  offers  the  right  framework  to  monitor  and  assess  the  Single  Market. 
There are important complementarities between the structural reforms fostered by the Semester and 
Single  Market  policies.  In  practice,  the  Semester  has  already  paid  increasing  attention  to  market 
imperfections, impediments deterring or delaying investment and hindering the good functioning of 
markets  and  business  dynamics  in  recent  years3.  The  Semester  also  allows  for  a  joint  analysis  of 
different  policies  and  objectives  at  the  national  level  relevant  for  the  performance  of  the  Single 
Market. In this context, structural reforms have been proposed and they are contributing to the better 
functioning of the Single Market. While the focus of the semester country reports and country-specific 
recommendations is on Member States, this report takes a broader EU level perspective and  zooms 
on the Single Market’s overall deliverables. This makes it a key document of the Annual Sustainable 
Growth Strategy. A separate report on the barriers to the Single Market, which mostly focuses on a 
qualitative  analysis  of  what  prevents  the  businesses  from  trading  across  the  Member  States,  will 
specifically address the recent Council request to monitor the Single Market. 

In a mature Single Market, monitoring must focus on results. The delivery of the Single Market’s 
ultimate objectives requires going beyond compliance with legal requirements. Realising the effective 
free circulation of goods and services will contribute to lower market prices to consumers by fostering 
competition  and  increasing  product  market  diversity.  But  the  free  circulation  of goods  and  services 
will not result in lower prices if firms with strong market power fail to pass the benefits through to 
consumers. 

This  report  is  a  first  effort  to  monitor  and  assess  Single  Market  performance  in  this 
comprehensive  way.  It  takes  into  account  (i)  obstacles  to  the  delivery  of  Single  Market  benefits 
smothering  the  delivery  of  Single  Market  benefits  to  citizens  and  businesses  (e.g.  not  just  those 
hindering  integration);  (ii)  the  ultimate  objectives  of  the  Single  Market  (e.g.  not  just  more  trade  or 
cross-border  activities  but  the  underlying  objectives,  such  as  more  choice,  lower  prices,  higher 
productivity and high standards of consumer safety and environmental protection); and (iii) a broad 
range of activities relevant for the good performance of the Single Market including its environmental 
performance and digitalisation (e.g. not just cross-border trade or investment).  

A full assessment along the lines described above would require new indicators and analytical 
approaches  and  some  of  them  are  not  available  today.  Therefore,  the  report  cannot  cover  some 
very  important  areas  and  dimensions  of  the  Single  Market  performance.  In  addition,  it  does  not  go 
into the assessment of issues related to the free circulation of citizens4. Taxation issues are mentioned 
in  some  sections  of  the  report  but  the  actual  assessment  of  the  impact  of  taxation  issues  on  the 
performance  of  the  Single  Market  would  require  a  dedicated  report.  The  same  applies  to  the 
monitoring of economic convergence in the Single Market. The Commission is working to develop 
new  indicators  that  will  allow  for  more  complete  monitoring  of  Single  Market  performance.  In  the 
meantime, different elements of evidence currently available are presented here as part of the Autumn 
Semester package.  

3 See for instance “The Economic Impact of Selected Structural Reform Measures in Italy, France, Spain and Portugal” (Institutional Paper 
023 | April 2016) that include the analysis of the functioning of goods and services markets which are key component of the Single Market..  
4  In  this  regard  the  Annual  Report  on  Intra-EU  Mobility  covers  certain  issues  related  to  the  free  movement  of  citizens.    
https://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=8174&furtherPubs=yes 

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2. GOODS AND SERVICES MARKETS 

a. GOODS MARKETS 

The evolution of the Single Market for goods  

The Single Market for goods has successfully achieved a high level of integration in the EU in 
comparison  to  other  areas  of  the  Single  Market.  Nevertheless,  the  recently  adopted  “Goods 
Package”5  highlighted  deficiencies and  shortcomings  suggesting  an  underperformance  of  the  Single 
Market for goods in certain areas requiring additional efforts, in particular calling for effective mutual 
recognition and enhanced market surveillance.  

The integration of the Single Market is founded on a legal framework that is deeply rooted in 
national legislations. Since the first issue of the Single Market Scoreboard, the average transposition 
deficit decreased from 6.3 % to 0.7 % between the end of 1997 and 2018, while the average delay in 
transposing  directives  diminished  by  50 %.  Over  the  years,  Member  States  have  shown  a  strong 
political commitment to transpose legislation and meet European Councils targets. 

A  number  of  tools  have  contributed  effectively  to  keeping  at  bay  the  development  of  new 
technical barriers that might have stifled the functioning of the Single Market, but they remain 
underexploited. A notification procedure for draft national technical regulations relating to products 
and  information  society  services6  was  introduced  in  the  1980s  and  finally  codified  by  the  Single 
Market  Transparency  Directive7.  The  procedure  has  proved  to  be  a  successful  and  efficient 
mechanism8  in  key  areas  of  the  Single  Market  such  as  information  society  services,  with  almost 
20 000 notifications.  

Feedback  from  market  surveillance  activities  points  to  weak  enforcement  of  product  rules. 
Member  States  are  responsible  for  checking  the  conformity  of  products  sold  in  the  Single  Market. 
However,  with  over  500  distinct  market  surveillance  authorities  across  the  EU,  enforcement  is  too 
fragmented  to  policing  the  Single  Market.  Furthermore,  enforcement  is  often  hampered  by 
shortcomings  in  terms  of  resources  (staff,  budget,  testing  and  laboratory  capacities),  coordination, 
information  exchange,  and  powers  with  regard  to  non-compliant  products.  Thus  there  is  a  risk  of 
having  too  many  unsafe  and  non-compliant  products  sold  on  the  EU  market,  with  negative 
consequences also on the competitiveness of compliant businesses9. 

5 https://europa.eu/rapid/press-release_IP-17-5301_en.htm  
6  The  notification by  a  Member  State  triggers  a  three-month  standstill  period  for  the  adoption  of  the  national draft technical  regulations. 
Should  a concern  in  the  light  of  EU  rules  be  identified  within  that  period,  the  Commission and/or  the  other  Member  States  may  issue  a 
formal reaction (comments, detailed opinion and/or decision to request the postponement of adoption), which needs to be taken into account 
by the notifying Member State and which may have the effect of postponing the standstill period. Stakeholders are also invited to submit 
their views on the draft technical regulations that are notified, which are made publicly available via TRIS. 
7 Directive (EU) 2015/1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision 
of information in the field of technical regulations and of rules on Information Society services. OJ L 241, 17.9.2015, p. 1.  
8  European  Commission,  (2003)  Evaluation  of  the  application  of  directive  98/34/EC  in  the  field  of  information  society  services,  COM 
(2003) 69 final Report from the commission to the European Parliament and the Council. 
9 
MarketSurveillance-EN.pdf  

http://www.industriall-europe.eu/Committees/IP/PolBrief/PB2016-08-

"Non-compliant 

industrial 

products 

destroy 

jobs!", 

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Table 2.1: Evolution of Single Market trade effects – summary of results 

Membership and accession effects 

Diminishing 
intra-EU15 
effects/ 
strong stimulus 
from accession 

Diminishing 
intra-EU15 
effects/partially 
compensating 
effects from 
accession 

Diminishing 
intra-EU15 
effects/weak 
stimulus from 
accession 

Decreasing 
intra-EU15 
effects/no 
positive 
stimulus from 
accession 

Positive and 
accelerating intra-
EU15 effects/strong 
stimulus from EU15-
Acc. bilateral trade 
effects 
* Textiles, wearing 
apparel,  leather 
products 
* Construction 
* Services 
* Furniture, other 
manufactured products. 

* Food, beverages, 
tobacco                    
* Pulp, paper, 
print., publishing 
* Computer, 
electronic. 
Electric.    and 
optical products 

* Chemicals and 
pharmaceuticals 
* Rubber and 
plastic products 
* Non-metallic 
mineral 
products 
* Basic and 
fabricated 
metals 
* Machinery 

* Wood, wood 
and cork 
products 

* Coke, refined 
petroleum prod. 

Positive and 
accelerating 
effects 

Stable positive 
effects 

Large positive 
beginning of 
period effects 

n
r
e
t
t
a
p
l
l
a
r
e
v
O

Negative/partly 
negative effects 

Source: WIFO (2019) 

The  establishment  of  the  Single  Market  for  goods  has  had  very  different  impacts  on  trade 
creation and diversion on sectors and countries over time. A recent study10 showed that the impact 
of Single Market integration has been mainly driven by the accession of thirteen Member States since 
2004. The study provides further details on the different impact on trade between the Member States 
that joined in or after 2004 and previous Member States for different sectors. These differences allow 
differentiating between accession and membership effects. The study confirms that trade in goods is 
currently  growing  mainly  thanks  to  new  trade  flows  involving  the  Member  States  that  joined  in  or 
after 2004. In addition, the study also shows the time profile of trade creation across sectors. It shows 
that although integration had a positive impact on trade in almost all sectors,11 this impact was short-
lived in some cases, while in others the intensity is still holding or even increasing in recent years. 

The  trade  impact  of  Single  Market  integration  differs  across  sectors  both  in  quantity  and 
distribution  over  time.  Table  2.1  provides  a  summary  of  the  intensity  and  profile  over  time  of 
integration. The impact has been positive for the textiles, furniture, transport equipment, food, paper, 
computer  and  electronics  sectors.  However,  while  the  impact  continues  accelerating  in  the  case  of 
textiles  and  furniture,  it  has  stabilised  for  the  other  sectors.  In  metal  products,  plastics,  chemicals, 
non-metallic mineral products and machinery, the large initial impact has weakened in the EU15, but 

10 Austrian Institute of Economic Research (WIFO) and The Economic and Social Research Institute (ESRI) (2019), The performance of the 
Single Market for goods after 25 years. 
11  The  “Coke  and  petrol  refining”  sector  is  a  special  case  due  to  its  global  dimension  and  the  restructuring  that  it  underwent  in  the  past 
decades.  

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it remains positive thanks to the impulse provided by new trade flows involving the EU13 Member 
States. In the case of wood and cork products, the impact is no longer positive at present12.  

The  cost  of  imperfect  compliance  in  the  Single  Market:  Impact  on  trade,  competition  and 
productivity  

Full  and  real  compliance  with  Single  Market  goods  legislation  could  further  boost  intra-EU 
trade. As explained, different factors hamper the release of all the potential of the Single Market. This 
also applies to goods markets. The above-mentioned study has estimated the cost in terms of foregone 
trade  flows  resulting  from  imperfect  compliance  with  Single  Market  rules  by  considering  five 
different scenarios (see table 2.2):  

(1)  Full transposition and elimination of transposition deficits of Single Market legislation;  

(2) Improvements in Member States’ compliance that eliminate the need to open proceedings;  

(3)  Improved  administrative  practices  and  better  Single  Market  rules  application  bringing 
SOLVIT cases to zero;  

(4)  Increased  efficiency  of  national  administrations  in  the  solution  of  SOLVIT  cases  to  the 
highest standards, and  

(5)  Reduction  in  the  number  of  cases  to  the  point  of  making  unnecessary  the  issuance  of 
Commission  comments  and  detailed  opinions  on  national  notifications  in  the  Technical 
Regulations Information System (TRIS). 

(i) Cost of imperfect compliance on trade 

Non-compliance with Single Market rules has a very negative impact in terms of foregone trade 
flows.  The  reduction  in  the  frequency  of  cases  of  non-compliance  (Member  States’  infringements) 
would expand intra-EU15 trade by 7.45 % and trade between the EU15 and the EU13 Member States 
by  8.6 %  (see table  2.2). Trade  expansion  could  be  particularly  important  in  “Non-metallic  mineral 
products” in this scenario where there is no reason to open proceedings. Transposition compliance and 
misapplications  of  Single  Market  rules  identified  in  the  SOLVIT  context  come  next  as  potential 
sources of potential additional trade flows that could be gained from the improved functioning of the 
Single Market for goods and TRIS having a more limited positive impact. 

There are large differences across Member States in the potential trade that could result from 
improved  compliance.  Among  the  countries  offering  more  potential  we  find  both  EU15  Member 
States  and  post-2004  Member  States.  Although  Poland  presents  the  highest  potential  yield  from 
improving compliance, three EU15 Member States (Italy, Spain, and Greece) display potential impact 
greater than in several new Member States. Other EU15 Member States also show high potential from 
better  compliance  (France,  Belgium,  and  Germany).  As  expected,  the  potential  gains  from  the 
reduction  of  transposition  issues  are  significantly  larger  in  Member  States  that  entered  the  Single 
Market after 2004. Cyprus shows the highest potential from improving its transposition record closely 
followed by Poland. 

12 The study also presents individual graphs for each sector with the time profile of the impact of integration for the EU15 and EU13 groups. 

9 

 
 
 
 
                                                           
Table  2.2:  -  Single  Market  intra-EU  trade  potential  of  counterfactual  policy  scenarios  across 
industries (trade flows changes in % expected after a reduction in non-compliance as expressed 
by the following indicators) 

Source: WIFO (2019)  
Note: Average general equilibrium import effects from EU trade with the EU15 and the accession countries in percent 
of the baseline scenario. See the definition of the scenarios in the previous page.  

(ii) Cost of imperfect compliance on competition and productivity 

Compliance  costs  in  trade  terms  have  knock-on  effects  on  competition  and  productivity.  As 
explained in the introduction of the report, the cost of trade losses carries over to competition in the 
form  of  higher concentration  and  markups  and  from  there  on to  productivity.  These  costs  are  more 
visible  to  consumers  and  business  than  forgone  trade.  The  economics  of  integration  suggests  that 
increasing  imports  leads  to  more  competition  and  higher  productivity  growth.  The  key  question  is 
whether the Single Market has delivered these expected benefits. 

Increasing  trade  intensity  between  Member  States  contributed  to  increase  competition  with  a 
positive  impact  on  labour  productivity.  The  WIFO  (2019)  study  estimates  first  the  relationship 
between  of  trade  and  competition  and  then  the  relationship  between  increasing  competition  and 
productivity growth.  The results confirm that the trade creation impact of the Single Market has been 
positively  correlated  with  increments in  competition and  labour  productivity.  Table  2.3  summarises 
the  impact  of  trade  expansion  as  a  result  of  the  Single  Market  programme  on  competition  and 
productivity. Higher market competition and labour productivity have been observed in sectors such 
as  “Wood  and  wood  products”,  “Pulp,  paper  and  publishing”,  “Chemicals  and  pharmaceuticals”, 
“Non-metallic  mineral  product”,  “Transport  equipment”  and  “Furniture  and  other  manufacturing”.  
There is no negative relationship between trade growth and competition in any sector. This means that 
higher  intra-EU  trade  is  associated  with  more  competition  and  higher  productivity  in  these  sectors. 
For the machinery sector there is a clearly positive relation between trade and competition, but this 
positive link is not carried over to productivity increases. 

10 

Acc.Acc.Acc.Acc.Acc.count.count.count.count.count.Text., wear. app., leath. prod.2.474.655.754.341.821.470.49-0.91-2.79-0.62Food, beverages, tobacco1.984.164.933.841.631.420.40-0.67-2.12-0.20Comp., electro., electric.,opt. p.2.254.565.374.631.741.500.54-0.79-2.66-0.78Machinery2.554.515.184.062.182.120.990.50-1.220.90Chemicals, pharmaceuticals3.456.436.726.482.983.561.591.29-1.191.56Rubber, plastic products3.056.046.016.032.693.321.491.17-1.251.60Transport equipment3.216.086.075.942.753.351.621.32-1.161.58Basic, fabricated metals4.969.418.149.584.456.333.103.98-0.014.25Pulp, paper, print., publ.4.909.067.679.074.446.423.314.320.964.75Wood, prod. of wood, cork6.1912.118.6112.345.499.224.646.991.687.23Non-metallic min. prod.7.4314.4810.2415.006.6611.125.648.752.398.86Furniture, other manufacturing7.1613.159.9313.396.6310.445.498.262.888.64Coke, refined petrol. prod.10.6319.1614.3320.229.9815.908.4313.105.1913.09Total4.558.587.458.614.045.732.863.560.103.85EU15EU15EU15EU15EU15indicatorindicatorindicatorTranspositionInfringementsSOLVITSOLVITTRISindicatorindicatormisapplicationsolution 
 
 
 
 
Table 2.3: Patterns of industry-specific trade, competition and productivity links – summary of 
results 

CR10 

Competition => Productivity 

Intra-EU Trade 

Positive 

Negative 

Insignificant 

Wood and products of wood and cork 

Pulp, paper, printing, publishing 

Chemicals and pharma 
Non-metallic mineral products 

Transport equipment 

Furniture, other manufacturing 

n
o
i
t
i
t
e
p
m
o
C

>
=

e
d
a
r
T

Positive 

Negative 

Rubber and plastic 
products 

Computer, electronic,  
electrical and 
 optical products 

Machinery 

Insignificant 

Textiles, wearing apparel, leather 
products 

 Basic and fabricated 
metals 

Food, beverages, tobacco 

Source: WIFO (2019) 

At Member State level the improvements in compliance with Single Market rules have a limited 
impact on competition but a slightly higher impact on productivity. All Member States would see 
a  boost  to  productivity  from  compliance  improvements  (1.3 %  on  average).  The  estimated 
productivity  gains  are  particularly  important  for  Italy  and  Spain  with  1.8 %  and  1.7 %  followed  by 
France  and  Poland  at  1.6  %  and  1.5 %,  respectively.  However,  an  improvement  of  these  indicators 
would not necessarily fully reflect the reality on the ground since an important number of deficiencies 
deriving  from  non-compliance  at  national  level  would  not  necessarily  be  captured  in  any  of  those 
categories (for example, national litigation has to be taken into account).  

Cost of imperfect compliance on safety and other public interests  

Imperfect compliance with EU rules on products is still an issue in the EU. Member States have 
the responsibility to carry out market surveillance to ensure compliance with Single Market rules on 
non-food products. Yet many goods sold on the EU market do not comply with these requirements. 
This means that their substantive characteristics are not in line with what is prescribed by EU rules 
and/or  that  mandatory  markings,  warnings,  labels  and  other  information  are  lacking,  incomplete  or 
incorrect. The exact share of non-compliant products cannot be quantified. However, the high shares 
of  products  found  to  be  non-compliant  during  inspections  carried  out  by  market  surveillance 
authorities  as  well  as  perception  of  businesses,  consumers  and  workers’  associations  suggest  the 
problem  is  rather  widespread.  For  instance,  in  the  period  2014-2016  non-compliance  was  found  on 
average  in  27 %  of  inspections  conducted  in  the  field  of  toys,  38 %  in  the  field  of  construction 
products and 34 % in the field of electromagnetic and radio equipment, 45 % in the field of lifts, 47 % 
in  the  field  of  machinery,  48 %  in  the  field  of  simple  pressure  vessels  and  pressure  equipment  and 
61 %  in  the  field  of  pyrotechnics.  In  2016,  2017  and  2018  a  total  of  2 126,  2 201  and  2 257 
notifications of dangerous products were submitted in the rapid alert system for dangerous non-food 
products  ‘RAPEX’13.  In  a  public  consultation  organised  by  the  Commission  in  the  area  of  market 

13 https://ec.europa.eu/consumers/consumers_safety/safety_products/rapex/alerts/repository/content/pages/rapex/index_en.htm    

11 

 
 
 
 
 
 
 
  
 
 
  
  
  
 
                                                           
surveillance, 89 % of all respondents considered the products in their sector as affected to some extent 
by non-compliance across all sectors and Member States14.  

Product non-compliance and subdued market surveillance reduces the Single Market’s ability 
to  protect  citizens.  In  practice,  non-compliance  means  that  citizens  are  exposed  to  potentially 
dangerous  products  or  that  there  is  other  relevant  harm  to  society  (e.g.  injury  to  workers,  unfair 
transactions,  pollution,  etc.)  depending  on  the  specific  product  at  stake  and  the  degree  of  the  non-
compliance by the product15. Thus while Single Market for goods legislation strives to achieve high 
standards of safety, security, protection of the environment and other public interests, the goal is only 
partly met due to inefficient market surveillance. 

Conclusions 

The Single Market for goods has so far delivered concrete benefits, yet there is still unexploited 
potential.  Despite  remaining  shortcomings  (e.g.  in  the  area  of  mutual  recognition),  the  important 
efforts to create a Single Market for goods in the last 25 years have delivered tangible results in terms 
of an increase in trade, competition and productivity in many of the sectors analysed. Further benefits 
could  be  attained  if  Member  States  improve  compliance  with  existing  rules  and  the  application  of 
available tools and procedures. In addition, a more efficient enforcement of market surveillance would 
eliminate the risk of distortion of competition from businesses marketing non-compliant products.   

Competition  remains  key  to  improve  the  performance  of  the  Single  Market.  Eliminating 
impediments  to  market  access,  although  necessary,  may  not  be  sufficient  to  ensure  that  expected 
benefits such as price convergence materialise. Effective competition in goods and services markets is 
needed to ensure that increases in productivity triggered by  market broadening and efficiency gains 
are passed on to consumers, instead of solely beefing up businesses’ markups. It is clear that issues 
related  to  productivity  and  competitiveness  are  not  necessarily  the  result  of  shortcomings  in  the 
functioning of the Single Market. They are often related to market behaviour and national regulatory 
interventions but they may effectively hinder the delivery of Single Market benefits. Precisely for this 
reason,  there  are  complementarities  between  the  reforms  fostered  by  the  Semester  and  the 
implementation of Single Market rules. 

The Single Market performance as regards the protection of public health and other relevant 
public interests is affected by product non-compliance. The system of national enforcement against 
non-compliant products could be improved. More resources, better coordination and a more efficient 
institutional set-up are necessary to ensure product requirements are respected and the level playing 
field among businesses restored. 

14 SWD/2017/0466 final - 2017/0353 (COD) (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2017:0466:FIN ) 
15 Non-compliance with substantive or technical product requirements (e.g. physical properties of a product) is often expected to bring about 
more  serious  consequences  than  non-compliance  with  requirements  of  formal  nature  (e.g.  mandatory  warnings,  labels  or  documentation 
accompanying the products or to be provided upon request), however the latter may also have serious implications (e.g. buyers using the 
product improperly lacking instructions). Non-compliance with formal aspects or mandatory markings, that can be spotted more easily, may 
also signal the likelihood of technical non-compliance. 

12 

 
 
 
 
                                                           
b. SERVICES MARKETS  

Low  productivity  growth  in  services  constrains  economic  growth  in  both  services  and 
manufacturing, given the share of the services sector in the economy and its spill over effects. 
The importance of the services sector has continued to grow over the past decades and today services 
generate  over  70 %  of  EU  GDP.  More  than  70 %  of  EU  workers  are  employed  in  services,  10 
percentage points more than in the rest of the OECD16. The manufacturing sector also relies heavily 
on services: on average about 25 % of direct cost in manufacturing are services inputs. When adding 
indirect linkages, the average service content of goods manufactured in the EU is close to 40 % of the 
total  value  of  final  manufactured  goods17.  There  is  a  growing  trend  of  goods  to  be  supplied  with 
services attached, a phenomenon also known as “servitisation of manufacturing”. 

For citizens, services performance means the possibility to enjoy cheap prices, product diversity 
and  ease  of retail  purchases,  including  cross-border. The  Single  Market  has  on  average  reduced 
trade  cost  by  21 %  for  goods,  but  only  by  7 %  for  services,  according  to  a  study  by  Copenhagen 
economics18.  

Low  cross-border  services  integration  and  weak  competitive  pressures  are  among  the  factors 
that  are  holding  back  the  performance  of  the  services  markets.  The  two  are,  to  a  significant 
extent, a result of the regulatory and administrative policies of the EU Member States. Difficulties in 
understanding  and  recognising  skills  and  qualifications  across  borders,  as  well  as  the  need  for 
investing more in upskilling and reskilling of the labour force, are further constraining the upscaling 
of services. 

EU services exhibit low productivity  

Productivity  growth  in  the  EU  services  sector  lags  behind  that  of  the  US.  The  period  after  the 
crisis reflects a lost decade, where the divergence of EU productivity in services vis-à-vis the US has 
fully  eroded  the  catching-up  achieved  before  the  crisis19.  The  growing  gap  between  EU  and  US 
productivity in services (see figure 2.1) is due to a number of factors: (i) drops in productivity levels 
across  all  EU  services sectors in  2009,  which  did  not  happen  to the same  extent  in the  US,  (ii)  the 
significantly larger productivity increases in IT services in the US than in the EU, with much of these 
increases  being  driven  by  the  large  US  tech  giants,  and  (iii)  the  high  productivity  levels  in 
professional  services  such  as  legal,  accounting,  architecture  and  engineering  services  in  the  US. 
“Behind most of these factors is a common denominator, namely the major difference in the size of the 
home market in the EU versus the US” 20. Firms in the EU have a smaller home market, particularly in 
the  smaller  Member  States.  Other  factors  explaining  the  growing  gap  between  EU  and  US 
productivity  in  services  include  differences  in  taxation,  pro-business  attitudes,  Information  and 
Communication  Technologies  (ICT)  diffusion,  and  rates  of  innovation.  All  are  disproportionally 
correlated  with  the  productivity  of  wholesale,  retail  and  business  services  relative  to  the  rest  of  the 
sectors in the economy21.  

16 https://www.oecd-ilibrary.org/economics/can-productivity-still-grow-in-service-based-economies_4458ec7b-en 
17 ECSIP Consortium “Study on the relation between industry and services in terms of productivity and value creation”, 2014  
18 Copenhagen economics, Making EU trade in services work for all, November 2018. 
19 Ibid 
20 Ibid 
21 Cesare Buiatti, Joao B. Duarte, Luis Felipe Saenz, Cambridge-INET institute, Cambridge-INET working paper series n°2017/4 

13 

 
 
 
 
 
 
                                                           
130

125

120

115

partly 

reflects 

Figure  2.1:    Labour  productivity  comparison  in 
purchasing  power  parities  between  the  US  and  the 
EU for services (2000 = 100) 

in 
The  weak  productivity  growth 
services 
intrinsic 
characteristics  of  the  sector,  but  large 
productivity  gaps  between  Member 
States  suggest  there  is  more  to  this. 
Indeed the share of EU countries that are 
well below the productivity frontier tends 
to  be  higher  in  services  (both  knowledge 
in 
intensive 
manufacturing22.  These 
cross-country 
differences  are  likely  to  reflect  many 
factors  such  as  differences  in  skills, 
digital  adoption  rates  or  the  mix  of 
specific  activities  within  industry.  These 
are  in  turn  influenced  by  interrelated 
factors:  the  level  of  market  integration, 
the  level  of  competition  and  the  type  of  regulatory  policies.  Limited  mobility  of  ‘tech  talents’  and 
researchers hampers knowledge circulation and innovation diffusion across Europe. 

Source: OECD statistics. 

others) 

EU services

US services

than 

and 

0
1
0
2

1
1
0
2

3
1
0
2

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

2
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

100

105

110

Services integration proceeds at a slow pace  

In the period 2010-2018, intra-EU trade in services has grown faster than EU GDP. But intra-EU 
trade in services, albeit at higher levels than extra-EU trade, grew just in line with the extra-EU trade 
growth,  by  about  6 %  on  average.  At  the  same  time,  intra-EU  trade  in  services  remains  relatively 
modest in absolute terms, still only representing one third of intra-EU trade in goods with no signs of 
catching up.  

Figure 2.2:  Evolution of integration in EU 
value  chains  (share  of  EU  value  added  
traded  cross-border  in  total  value  added, 
overall economy, 2000-2014) 

Figure  2.3:      Degree  of  integration  in  EU 
value chains per sector (share of EU value 
added  traded  cross-border  in  the  total 
value added per sector in 2000 and 2014) 

16%

15%

14%

13%

2000 2002 2004 2006 2008 2010 2012 2014

Source: WIOD database 

2000 
2014 

40%

35%

30%

25%

20%

15%

10%

5%

0%

Primary Manufacturing Utilities

Construction

Market
Services

Other Services

However  the  value  added  of  services  embodied  in  manufacturing  trade  is  increasing  faster. 
Trade measured as value added in the World Input Output database (WIOD) shows trade in services 

22   Sorbe, S., P. Gal and V. Millot (2018), "Can productivity still grow in service-based economies?: Literature overview and preliminary 
evidence 
from  OECD  countries",  OECD  Economics  Department  Working  Papers,  No.  1531,  OECD  Publishing,  Paris, 
https://doi.org/10.1787/4458ec7b-en. 

14 

 
 
                                                           
 
 
 
 
 
faring  somewhat  better  than  when  measured  via  conventional  measures  of  international  trade.  EU 
integration of value chains during the period 2000-2014 measured as the share of cross-border value 
added  over  total  value  added,  trended  upwards  and  has  been  only  briefly  interrupted  by  the  crisis 
(figure  2.2).  EU  cross-border  value  added  has  increased  about  twice  as  much  (2.3 %)  as  total  EU 
value  added  (1.2 %),  putting  its  share  in  total  EU  value  added  at  almost  16 %.  About  2  percentage 
points  of  this  increase  is  accounted  for  by  market  services  and  less  than  0.5  percentage  point  by 
manufacturing. But while market services had a stronger contribution, the sector remains much less 
integrated than manufacturing (figure 2.3). 

10%

20%

18%

16%

14%

12%

Figure 2.4: Proportion of total value added generated by 
intra-EU foreign affiliates (2016)23 

The  Single  Market  in  services  also  integrates  through  the  cross-border  establishment  of 
companies. The Single Market in services does not consist solely of cross-border trade. Cross-border 
least  equally 
is  at 
establishment 
important,  in  particular  given  that 
many  services  are  still  less  tradable 
and/or  require  (some)  proximity  to 
the  client.  Data  on  firms’  foreign 
affiliates  shows 
that  cross-border 
investments in services sectors, such 
as  retail  and  wholesale  services  as 
well  as  business 
services,  are 
large  amount  of 
generating  a 
economic  activity 
the  EU. 
Services  account  for  only  43 %  of 
the  sales  of  affiliates  around  the 
world, but in value-added terms, this 
share  rises  to  60 %24.  In  all  services 
sectors  the  level  of  integration  via 
cross-border  establishment  is  also 

Manufacturing Wholesale and
retail services

Information and
communication
services

Source: European Commission 
lower than that in the manufacturing sector (figure 2.4). 

Construction
services

Business
services

Transport

in 

0%

2%

4%

6%

8%

Weak competitive pressures partly result from the regulatory policies of the EU Member States 

Although integration within the EU has led to considerable regulatory harmonisation among its 
members, remaining services trade restrictions affect market performance in many sectors and 
many Member States. Based on 25 member countries of the European Economic Area (EEA), the 
OECD  Services Trade  Restrictiveness  Index  (STRI)  records restrictions to services trade  within  the 
Single  Market  of  the  EEA  (see  figure  2.5)25.  More  important  than  heterogeneity  across  sectors, 
however, is heterogeneity across countries. The average difference between the most restrictive and 
the most liberal country in each sector is 0.09. In some sectors, such as courier services, this spread is 
even larger. 

23 

This indicator is calculated by dividing the total value added that is generated by EU foreign affiliates in another EU Member State in a 

given sector over the total value added in this sector. 
24 Source: OECD Trade policy papers n°112, Multinational production and trade in services, 2018 
25 Benz, S. and F. Gonzales (2019), “Intra-EEA STRI Database: Methodology and Results”, OECD Trade Policy Papers, No. 223, OECD 
Publishing, Paris. 

15 

 
 
                                                           
 
 
 
Figure 2.5: Intra-EEA OECD Services Trade Restrictiveness Index (STRI) sector profiles 

0,3

0,25

0,2

0,15

0,1

0,05

0

Average

Minimum

Maximum

Source: OECD, 2018 – 
Note: Y-axis STRI indices take the value from 0 (complete openness to trade) to 1 (completely closed).  

While many regulatory restrictions are justified by the public interest, unnecessary restrictions 
hurt the proper functioning of the Single Market for services, according to some studies26. Apart 
from  the  benefits  for  competition  and  (lower)  prices  and  markups  that  a  reduction  of  undue 
restrictiveness yields, such a reduction has been shown to strongly support ICT investment in services 
(where the EU lags behind the US), productivity of services and the competitiveness of EU industry27.  

Figure 2.6: Market entry rates (aggregated at EU level, 2016)28 

25,0%

20,0%

15,0%

10,0%

5,0%

0,0%

Source: European Commission 

Competition in several services sectors is subdued on the back of low business dynamism.  The 
intensity  of  competition  varies  significantly  between  different  Member  States  and  services  sectors. 
For example, business services with a more restrictive regulatory environment, such as architectural, 
legal  and  accounting  services,  show  significantly  lower  market  entry  rates  (which  is  a  proxy  for 
business dynamics) than other services with less regulatory burden (see figure 2.6).  

26  E.g.  Oliver  Holtemölle(2019),  How  Can  We  Boost  Competition    in  the  Services  Sector?,  2019;  European  Parliament,  Contribution  to 
Growth: The Single Market for Services,   
27  For  instance,  in  European  Commission,  2016  European  Semester:  Country  Report  –  Austria,  it  is  estimated  that  a  liberalisation  of 
professional services in Austria, where these services face strong regulation, would raise GDP by 0.9% in the long run. 
28 Number of enterprise births in the reference period (t) divided by the number of enterprises active in t - percentage 

16 

 
 
 
 
                                                           
Structural reforms to open up services markets would likely increase competition in the sector 
concerned, lower excessive rents and deliver benefits to consumers29. If Member States were more 
ambitious  in  implementing  reforms  in  the  services  sectors  to  reach  the  average  of  the  five  least 
restrictive  Member  States,  the  additional  growth  potential  would  be  1.8 %  of  EU  GDP30.  Limiting 
service  sector  restrictions  to  the  level  of  the  three  least  regulated  EU  Member  States  (the  UK, 
Denmark  and  Sweden)  would  probably  increase  the  productivity  of  services  and  manufacturing  by 
5.3 % within two years of implementation31. 

Figure  2.7:  Increases  in  firm-level  productivity  due  to  reductions  in  barriers  to  conduct  and 
entry, 2016 

to 

the 

rescue 

Source:  OECD  and  World  Bank  Group,  (2016),  EU  regular  economic  report  3,  Growth,  jobs  and  integration: 
(http://pubdocs.worldbank.org/en/930531475587494592/EU-RER-3-Services-to-the-
Services 
Rescue.pdf) 
Note: The chart shows the percent increase of firm-level total factor productivity (TFP) from reducing barriers to the 
average  of  the  three  least  restrictive  countries.  Luxembourg  is  excluded  as  it  is  an  outlier.  Average  refers  to  the 
average  coefficient  of  four  different  TFP  measures  while  high  refers  to  the  highest  coefficient  of  the  four  different 
TFP measures.  

Business and professional services 

Business services account for a significant share of value added and cross-border trade has been 
on the increase. Intra-EU trade in services is mainly concentrated in five sectors: business services, 
travel  services,  transport,  financial  services  (including  insurance)  as  well  as  telecommunications, 
computer and information services. All have seen positive growth rates in recent years, with intra-EU 
trade  in  business  services  almost  having  doubled  over  the  period  2010-2018  (see  figure  2.8).  Most 
cross-border  trade  in  business  services  is  generated  by  services  such  as  management  consulting, 
research  and  development  as  well  as  advertising  and  market  research.  At  the  same  time,  trade  in 
highly regulated business services (e.g. engineering, accounting, legal and architectural services) still 
stands at very low levels. 

29 See for  example European Commission, “The Economic Impact of Professional Services  Liberalisation”, 2014; European Commission 
“Identifying Priority Service Sectors for Reforms in France”, 2018 
30  Monteagudo  J.,  A.  Rutkowski  and  D.  Lorenzani  “The  economic  impact  of  the  Services  Directive:  A  first  assessment  following 
implementation”, European Commission Economic Paper 456, 2012. 
31 World Bank “Growth, jobs and integration: Services to the rescue”, World Bank EU Regular Economic Report, 2016. 

17 

 
 
 
                                                           
Figure 2.8: Intra-EU trade in services (intra-EU exports/GDP) in 2010 and 2018 

Telecommunications, computer and information services

Other services

Business services

Financial services (incl. insurance)

Travel

Transport

Intra EU Services Export/EU GDP 2018

Intra EU Services Export/EU GDP 2010

0,0%

0,5%

1,0%

1,5%

2,0%

Source: European Commission 

Despite  growing  trade  in  the  provision  of  professional  services  in  the  Single  Market,  market 
performance remains hampered by national regulations. Regulated professions account for 22 % 
of  the  European  labour  force32.  Around  80 %  of  outputs  from  legal,  accounting,  engineering  and 
architectural services are used as intermediate inputs for other sectors in the EU both domestically and 
cross-border, including important manufacturing activities33. Restrictiveness of national requirements 
for  some  economically  important  professions  (as  measured  by  the  Commission's  restrictiveness 
indicator  for  professional  services,  see  figure  2.9)  shows  a  significant  dispersion  across  Member 
States. Asymmetries in the mobility of high-skilled professionals and researchers stifle the diffusion 
of  innovations  and  the  impact  of  research  and  innovation  investment  on  the  economy.  National 
reforms  aiming  to  improve  and  streamline  the  regulatory  framework  for  professional  services  have 
only achieved limited progress so far.  

Figure 2.9: Restrictiveness of national regulation for business professions, 2016  

4

3,5

3

2,5

2

1,5

1

0,5

0

SE DK EE NL FI

LT LV BG SI UK ES CY BE FR HU IE EU EL

IT CZ RO MT AT PL SK PT HR DE LU

Accountant

Architect

Civil engineer

Lawyer

Source: European Commission 
Note:  Restrictiveness  indicator  measuring  the  overall  intensity  of  restrictions  in  national  regulation  as  regards 
access to and exercise of certain regulated professions, quantified on a scale from 0 to 6. 

Evidence shows that stricter entry and conduct requirements are not necessarily associated with 
higher service quality. Heavy and restrictive entry conditions, for example in the form of licensing or 
multiple administrative requirements, are often presented as being justified on grounds of consumer 
protection and ensuring the high quality of services to be provided. However, evidence shows that less 

32 Koumenta M. and M. Pagliero (2016), "Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU". See: 

http://ec.europa.eu/DocsRoom/documents/20362. 

33  Source:  WIOD  (2016)  input-output table  for  2014  (http://www.wiod.org/release16),  Commission  services’  calculations  of  intermediate 

inputs shares. 

18 

 
 
 
 
 
                                                           
restrictive access conditions are not necessarily associated with lower quality standards of the services 
delivered, as measured for example by surveys of consumer satisfaction and other indicators of well-
being. On the contrary, several case studies find a positive correlation between higher levels of service 
availability and competition and some aspects of quality34. 

Excess restrictions in professional services stifle competition and limit market entry. Regulation, 
while instrumental in certain professional services, can often be associated with significant economic 
costs through limiting market entry and competition, which manifests for instance in lower growth in 
the number of enterprises and higher incumbents’ rents (see figures 2.10, 2.11) 35.   

Higher  restrictions  also  impact  cross-border  mobility  by  imposing  significant  costs  on  non-
national  workers.  Depending  on  the  profession  and  under  certain  assumptions  on  labour  demand 
structure, there could be between 3 and 9 % more people working in a given profession in the EU if 
access requirements were less stringent36. 

Figure  2.10:  Regression  analysis  between 
the level  of  restrictiveness  and the  growth 
in number of enterprises 

Figure  2.11:  Regression  analysis  between 
the level of restrictiveness and profit rates 

30

20

10

0

30

20

10

0

-4

-2

0

2

4

-4

-2

0

2

4

-10

-20

-30

-10

-20

-30

Source: European Commission.  
Note: Horizontal axis represents the restrictiveness 
indicator and vertical axis represents the growth in 
the number of enterprises.  
Both are “de-meaned”, i.e. the value plotted represents the value of the variable less the weighted mean of 
all observations. Bubble sizes represent the respective weight of the sectors considered. 

Note: Horizontal axis represents the restrictiveness 
indicator and vertical axis represents profitability.  

The  elimination  of  obstacles  in  highly  regulated  services  would  have  a  positive  impact  on  the 
sector’s value added and employment, but also, through lower prices of input, on a number of 
other  sectors  both  domestically  and  in  other  countries.  A  modelling  exercise  done  with 
RHOMOLO (Box 1) illustrates the potential impact of reducing obstacles to entry in four important 
business  services  markets,  namely  legal,  accounting,  architectural  and  engineering  services,37  by 
simulating a 'closing the gap' exercise, i.e. a scenario in which one or more EU Member States reduce 
their  level  of  restrictiveness  to  the  average  of  the  3  top  performers.  In  addition,  results  from 
FIDELIO38 suggest that of the total benefits realized after 10 years, around 7 % are found in the price-

34 Study by the European Commission of six profession and country specific case studies that assess the effect of regulation on a number of 
quality  indicators:  Koumenta  et  al,  2019:  https://publications.europa.eu/en/publication-detail/-/publication/bfd2b0e8-1943-11e9-8d04-
01aa75ed71a1/language-en 
35 European Commission SWD(2016) 436 “Communication on reform recommendations for regulation in professional services” 
36 Koumenta, M. and M. Pagliero (2016), "Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU". See: 
http://ec.europa.eu/DocsRoom/documents/20362    
37 Corresponding to M69 and M71 in the NACE2 sector classification system. 
38 Rocchi et al. (2019) FIDELIO 3 manual: Equations and Data sources, JRC Technical Report JRC115308, EUR 29620 EN, Publications 
Office of the European Union, Luxembourg. 

19 

 
 
  
 
 
 
 
                                                           
dropping sector itself, 77 % in other sectors of the country itself, and the remaining 16 % in other EU 
countries. 

Obstacles  in  the  recognition  of  skills  and  qualifications  across  borders  and  the  need  for 
upskilling and reskilling the labour force also impact the upscaling of business. It is important for 
employers  to  correctly  interpret  and  value  qualifications  so  that  they  can  better  understand  their 
relevance  and  assess  how  people  skills  match  business  needs.  In  addition,  while  the  need  for  high-
level skills is growing, there is an oversupply of low-skilled labour across Member States. On average 
20%  of  workers  have  low  basic  skills  and  many  more  lack  transversal  skills  necessary  to  adapt 
quickly to the changing work environment. 

Box  1:  A  100 %  'closing  the  gap'  exercise  for  regulatory  restrictiveness  in  legal,  accounting, 
architectural and engineering services, using the RHOMOLO* modeli 

The  RHOMOLO  simulation  estimates  the  potential  impact  of  reducing  obstacles  to  entry  in  four 
important business services markets. The model predicts after ten years a positive gain of EU-wide 
gross  domestic  product  (GDP)  and  employment  of  up  to  EUR  41  billion  and  slightly  less  than 
500,000 persons employed with respect to the baseline scenario, respectively, if this occurred in all 
EU  Member  States.  The  effects  would  be  lower  if  the  change  occurred  in  one  country  only  (see 
figure 2.12). The impact on GDP and employment varies across Member States. In the short run, the 
change in GDP can be as high as EUR 2.4 billion in Germany or EUR 1.3 billion in Italy. After 10 
years, however, all Member States experience an increase in GDP, the highest being recorded for 
Germany  EUR  11.4  billion)  and  the  lowest  for  Estonia  (EUR  5  million).  As  for  the  change  in 
employment,  after  10  years  it  ranges  from  about  +100  persons  employed  in  Estonia  to  about 
+118,000 in Germany. 

In  most Member States, the professional services sector experiences a decline in value added and 
employment,  resulting  from  the  relatively  low  substitution  elasticities  in  intermediate  inputs  and 
consumption used in RHOMOLO. Thus, this sector experiences only a very modest rise in demand 
for  its  goods.  The  positive  overall  value  added  effects  of  reducing  obstacles  to  entry  in  the  four 
considered  business  services  comes  from  the  positive  spill  overs  to  the  other  sectors  of  the 
economy. In the short run, the largest contribution to the rise in EU value added can be traced to the 
sectors of manufacturing (EUR 3.5 billion) and public administration, education and health (EUR 
2.7 billion). After 10 years, the largest contributing sectors are manufacturing (EUR 16 billion) and 
financial  services  (EUR  8  billion).  As  for  employment,  after  10  years  the  largest  increases  are 
recorded  in  the  manufacturing  sector  (more  than  200,000  persons  employed)  and  in  the  public 
administration, education and health sector (more than 100,000 persons employed). 

*RHOMOLO  (Regional  holistic  model)  is  a  spatial  computable  general  equilibrium  model  developed  by  the  European  Commission's 
Joint  Research  Centre  (JRC).  It  is  used  for  policy  impact  assessment  and  provides  sector-,  region-  and  time-specific  simulations  to 
support the EU policy on investments as well as reforms covering a wide array of objectives. All monetary transactions in the economy 
are  included  in  the  model  as  a  result  of  agents  making  optimising  decision.  Goods  and  services  are  consumed  by  households, 
governments and firms, and are produced in markets that can be either perfectly or imperfectly competitive. Spatial interactions between 
regions  are  captured  through  costly  trade  matrices  of  goods  and  services  and  factor  mobility  through  migration  and  investments.  For 
further information see Lecca et al. (2018), RHOMOLO V3: A Spatial Modelling Framework, EUR29229 EN, Publications Office of the 
European Union, Luxembourg, JRC111861. 

For  other  estimations  of  benefits  in  professional  services,  see  European  Commission  (2014),  ‘The  economic  impact  of  professional 
services liberalisation’, Economic Papers, No 533. Specific results were reported for AT and DE in the 2016 Country Reports.  Broader 
studies  of  the  benefits  of  the  Single  Market  in  Services  include  Pelkmans  J.  (2019)  Contribution  to  Growth:  The  Single  Market  for 
Services - Delivering economic benefits for citizens and businesses, study for the IMCO committee of the European Parliament, February 
2020. 

20 

 
 
 
 
Construction services 

Restrictive  national  regulation applicable to  construction  services results  in little  cross-border 
activity.  Construction  works  undertaken  by  builders  and  developers  account  for  6.1 %  of  EU  GDP 
and  7.3 %  of  EU  employment.  The  construction  sector  was  particularly  impacted  by  the  economic 
crisis and its recovery is proving slow in view of relatively low average productivity and persistent 
legal market access impairments. 

Figure:  2.12             Value added impact 

Employment impact 
for the total EU from a 'closing the gap' reduction of restrictiveness in 
accounting/legal/architectural/engineering services in DE, FR, UK, IT, ES, or all MS 

Source: European Commission. 

Figure:  2.13            Value added impact 

Employment impact 

for the total EU from a 5 % increase in labour productivity in the construction sector in DE, FR, 
UK, IT, ES, SE, or all MS 

Source: European Commission 

Lower  prices  for  construction  would  generate  similar  benefits  in  terms  of  value  added  and 
employment.  Using  the  RHOMOLO  model  to  simulate  the  effect  of  a  5 %  increase  in  labour 
productivity in the construction sector illustrates the potential gains in the construction sector, with up 
to EUR 39 billion in terms of EU-wide value added and 119 thousand jobs in terms of employment 
after ten years in the scenario in which all EU Member States experience the price drop (see figures 
2.13).  Again,  FIDELIO  results  show  that  on  average  only  5 %  of  the  benefits  are  realized  in  the 
construction sector itself, while 79 % accrue to other sectors of the same country and 16 % to other 

21 

 
 
 
 
 
 
 
 
 
 
 
 
countries.  Importantly,  if  only  one  country  makes  progress  in  the  construction  sector,  benefits  are 
lower than when more or all do it39. 

Retail 

The retail sector has contributed to delivering the Single Market directly to consumers but still 
holds potential. Retail is important to the Single Market not only due to its size (4.5 % of value added 
and 8.6 % of employment), but also because of its linkages with other sectors of the economy (e.g. 
wholesale, manufacturing, farming, business services sectors). Brick-and-mortar retail is characterised 
by  a  dynamic  cross-border  expansion  of  large  and  medium-sized  companies  establishing  in  other 
Member  States.  The  starting  point  for  their  development  is  the  domestic  market,  however  it  is  the 
cross-border expansion that is the condition to actually build scale. This can happen via establishing 
shops abroad (all ten biggest retail companies in the EU are multinational) or by cross-border online 
sales. Cross-border online sales are growing, but there is potential for further development. In 2017, 
22 % of EU retailers were selling through e-commerce and yet only 10 % sell to consumers located in 
other EU countries40. The most important obstacles to develop cross-border online sales are the risk of 
fraud  and  non-payment,  differences  in  contract  laws,  as  well  as  differences  in  national  consumer 
protection rules. The extra need for IT skills is also an obstacle to the development of online sales, 
according to almost 42 % of retailers41. 

Compared to other services sectors, retail shows relatively low profitability and a high rate of 
companies' births and deaths. This is mostly due to the constant need of retail businesses to adapt to 
market conditions in order to remain competitive and survive. However, both profitability and market 
dynamism vary significantly among Member States, indicating that there is a margin of improvement 
of  less  well  performing  countries.  Concentration  in  the  retail  sector  differs  largely  across  Member 
States. For the grocery market, the share of top five retailers ranges from below 40 % (e.g. in IT and 
BG) to over 80 % (e.g. in FI and AT)42. This might impact competition. However, in the case of retail, 
competition  is  particularly  important  at  the  local  level  –  how  many  and  what  types  of  shops 
consumers can choose from in their catchment area.  

Establishing  adequate  and  proportionate  regulatory  conditions  helps  retailers  to  remain 
competitive  and  grow.  A  Commission  analysis  of  the  links  between  the  Retail  Restrictiveness 
Indicator43 (mainly its retail establishment-related parts) and retail performance concluded that in the 
retail sector, higher restrictions were linked with lower retail market dynamics (as measured by churn 
rates),  higher  retail  market  concentration  and  higher  level  of  consumer  prices,  in  particular  of  food 
(see  figures  2.14).  Also  restrictions  to  retail  measured  by  the  OECD  indicator  on  Product  Market 
Regulations have a negative impact on labour productivity growth in the sector, possibly due to the 
reduction in competition that results from fewer entries and less firm fluctuation44. They also seem to 
be negatively correlated with investment in information and communication technology. 

39 More details on the RHOMOLO and FIDELIO modelling simulations can be found in: Christensen, M., Barbero, J., Rocchi, P., Conte, A., 
Marschinski,  R.,  and  Salotti  S.  (2019).  Economic  modelling  for  the  Single  Market  performance  report  2019.  Territorial  Development 
Insights Series, JRC118689, European Commission 
40 Eurostat isoc_ec_eseln2. 
41 Consumer Conditions Scoreboard 2017 
42  Jungmittag,  Andre  (2018)  “The  Direct  and  Indirect  Effects  of  Product Market  Regulations in the  Retail  Trade  Sector”,  JRC  Technical 
Reports. 
43 This is made of 14 types of restrictions, two sub-pillars, two pillars and one overall index across the 28 EU Member States. 
44 JRC technical report (2018) The Direct and Indirect Effects of Product Market Regulations in the Retail Trade Sector 

22 

 
 
 
 
                                                           
Figures 2.14: Correlation between the level of restrictiveness of retail establishment and the 
churn rates of retail companies (a). Correlation between requirements linked to specific size 
thresholds and the level of consumer prices (b). 

18

16

14

12

10

8

6

4

2

0

5
1
0
2
s
e
i
n
a
p
m
o
c

l
i
a
t
e
r

f
o
e
t
a
r
h
t
r
i
B

LT 

LV 
BG 

PL 
RO 

CZ 

EE 

SK 

PT 

HR 
SE 
FR 
FI 

EL 

R² = 0,171 

SI 

HU 

AT 
BE 

NL 

UK 

DK 

ES 

DE 

MT 

IE 

CY 

LU 
IT 

0

1

2

3

4

5

Establishment restrictions 

35

30

25

20

15

10

5

0

5
1
0
2
s
e
i
n
a
p
m
o
c

l
i
a
t
e
r

f
o
e
t
a
r
n
r
u
h
C

BG 

PL 

EE 

LV 

LT 
RO 

SK 

CZ 

HR 
SE 
FI 
FR 

EL 

PT 

SI 
HU 

NL 

ES 

UK 

DK 

AT 

BE 

CY 

DE 
R² = 0,0854 
MT 

IE 

LU 
IT 

0

1

2

3

4

5

Establishment restrictions 

Source:  European  Commission  own  analysis  based  on  information  from  the  retail  establishment  study,  the 
Member  States  authorities,  and  Eurostat;  Staff  Working  Document  accompanying  the  Communication  “A 
European retail sector fit for the 21st century”, SWD(2018) 236. 

Restrictions may stem not only from regulations, but also from business operators. An example 
of such restrictions are the territorial supply constraints. These are practices by which suppliers may 
limit  retailers'  possibilities  to  purchase  products  from  whom  and  from  where  they  want  across 
borders45.  Another  important  example  is  contractual  geo-blocking  when  manufacturers  or  copyright 
holders agree with retailers to prevent online shoppers from purchasing goods based on the shopper's 
location or country of residence. The Commission’s sector inquiry into e-commerce in 2017 showed 
that  38 %  of the responding  retailers  selling  consumer  goods,  such  as clothes,  shoes,  sports  articles 
and  consumer  electronics  online,  use  geo-blocking.  12 %  of  those  retailers  report  contractual 
restrictions on cross-border sales for at least one product category they offer. Almost 60 % of digital 
content providers who participated in the inquiry had contractually agreed with right holders to geo-
block.  

Although  there  may  be  good  reasons  for  certain  economic  operators  not  selling  cross-border 
(differences in consumer laws, bottlenecks in cross-border delivery channels etc.), a significant 
number  of  operator-level  restrictions  may  be  unjustified.  The  Geo-blocking  Regulation  which 
came into force on 3 December 2018 should put an end to such unjustified practices in a large number 
of sectors which fall under the scope of the Regulation. In addition, the Commission has adopted a 
number  of  competition  law  decisions  condemning  geo-blocking  practices  by  companies.  Geo-
blocking  is  sometimes  also  combined  with  resale  price  maintenance  (RPM)  practices  which  in 
particular  target  online  retailers  that  sell  products  online  at  lower  prices  than  those  desired  by 
manufacturers for a particular Member State. The Commission has fined a number of companies for 
such anti-competitive agreements. In those cases, RPM led to higher prices for consumers for a wide 
range of consumer electronic products46.  

45  The Commission launched a study to look into the prevalence, the nature, possible reasons and the impact of territorial supply constraints. 
Results of the study (possibly available by June 2020) will guide whether and what kind of further action could be needed. The benefits and 
costs of such an action will need to be assessed carefully. 
46 Other measures adopted by the Commission which aim at smoothening cross-border trade within the EU in particular for small retailers 
include increased harmonisation of consumer protection, transparency for cross-border parcel delivery conditions, and easier value added 
tax (VAT) compliance for intra EU transactions. 

23 

 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conclusions 

Member  States  can  improve  the  economic  performance  of  the  Single  Market  for  services  by 
ensuring that regulatory restrictions are adequate and proportionate. Insufficient integration may 
result  from  perfectly  legitimate  policy  choices  in  many  cases.  This  is  why  Member  States  should 
ensure that services providers and regulations do not create unjustified or disproportionate obstacles 
hindering  the  performance  of  the  Single  Market.  The  good  functioning  of  the  Single  Market  for 
services will strengthen competition and allow customers to access a wider choice and a better quality 
of  services,  including  the  more  innovative  ones.  It  should  also  contribute  to  lowering  markups  and 
prices.  This  will  foster  the  competitiveness  of  the  EU  services  industry,  but  also  of  the  EU 
manufacturing industry, a large customer of services. Member States could complement this policy by 
designing  actions  to  help  services  providers,  in  particular  SMEs,  to  use  new  technologies  and 
digitalisation  efficiently  and  to  encourage  the  development  of  digital  skills.  A  good  business 
environment is also key to foster the growth of firms providing services.  

c. EFFECTIVE COMPETITION  

Without  effective  competition,  firms  and  consumers  will  not  fully  benefit  from  Single  Market 
integration. Since its inception, the Single Market has boosted trade flows within the EU through the 
elimination  of  trade  tariffs  and  the  reduction  in  non-tariff  barriers,  raising  output  and  domestic 
demand.  In  parallel,  it  has  increased  market  competition,  reduced  markups  and  lowered  prices  by 
opening-up domestic economies47. Many sectors however continue to experience a lack of effective 
competition.  This  does  not  necessarily  mean  that  companies  in  these  sectors  break  EU  competition 
rules. It however means that these markets perform below their potential. Competition, especially in 
services and network industries, remains one of the areas where Member States have made the least 
progress 
technological 
implementing  Country  Specific  Recommendations.  Furthermore, 
development  and  the  resulting  changes  in  the  structures  of  the  European  economy  and  of  the 
economies of its key trading partners have resulted in increased pressure on competition. Competition 
rules are only as successful as their implementation and thus need to be implemented effectively in all 
sectors48. 

in 

Competition  rules  prevent  Single  Market  partitioning  by  private  operators  and  improve  the 
functioning of markets in a wider sense. Competition policy can address anti-competitive conduct 
that restricts cross-border trade between firms in different Member States. Such restrictions can occur 
through  anticompetitive  agreements  or  abuses  of  a  dominant  position.  In  a  recent  case,  the 
Commission fined the world’s largest beer company for hindering cheaper imports from one Member 
State  into  a  neighbouring  one.  Market  partitioning  is  however  not  the  only  source  of  insufficient 
competition  as  even  integrated  markets  often  show  a  weak  degree  of  actual  competition.  The 
contribution  of  EU  competition  policy  to  the  functioning  of  the  Single  Market  thus  goes  beyond 
merely preventing market partitioning. 

Signs of weakened competition 

Following  a  period  of  relative  stability,  indicators  of  competition  have  deteriorated  after  the 
crisis. These trends are less pronounced in Europe than in US but still clearly detectable (see figure 
2.15).  The  observed  patterns  include  industry-level  concentration  which  according  to  OECD  data 

47 According to one recent study the combined impact of the lowering of trade barriers and increased competition two channels raised EU 
GDP by 8-9 % on average in the long run (see DG ECFIN paper on “Quantifying the Economic Effects of the Single Market in a Structural 
Macromodel”  by  Jan in  ‘t  Veld, 8  February  2019”).  This  simulated impact is  somewhat  larger  than  the  ex-ante  estimates  reported in  the 
Cecchini report, but of a comparable magnitude to estimates found in Mayer et al. (2018) and Felbermayr et al. (2018), considering that 
these studies only look at the effect of higher trade barriers and do not include effects from mark-ups. The competition channel has added an 
additional 2 % to the GDP effects from lower trade barriers.” 
48 See the President-elect’s Mission letter to the Executive Vice-President-designate for a Europe fit for the Digital Age of 10.09.2019.  

24 

 
 
                                                           
climbed  over  the  past  20  year  in  both  the  US  and  Europe.  Possible  explanations  include  structural 
changes  in  the  economy,  in  particular  the  rise  of  new  technologies  with  more  efficient  production 
methods, as well as a weakening of competition.  

in 

trend 

to  as 

referred 

involving 

Figure  2.15:  Change  in  the  market  share  of  the 
largest eight companies/groups 

The 
higher 
concentration  ratios  and  markups  is 
also  reflected 
increased  market 
power,  especially  among  larger  firms. 
Possible  explanations  include  changes  in 
business  dynamics  and  structure  of 
markets. This concerns winner-takes-most 
outcomes,  also 
the 
“superstar  firm”  hypothesis,  where  the 
more  productive  firms  increasingly  reap 
the  benefits  of  network  effects  and  scale 
economies.  The  digitalisation  of 
the 
economy  increases  the  importance  of 
knowledge assets. A few firms, especially 
in  digital-intensive  sectors,  benefit  from 
high  and  increasing  markups  and  gain 
large  market  shares  due  to  the  intensive 
use  of  intangible  assets,  such  as  data  analytics,  and  the  difficult  replication  of  successful  business 
models, together with declining IT capital prices. Such outcomes are possibly also going beyond the 
digital  economy49.  Firm  markups  have  also  increased,  especially  among  the  most  successful  firms. 
More  generally,  price  cost  margins  (as  a  further  markup  indicator)  remain  comparatively  higher  in 
services than in manufacturing (figure 2.16). 

Source: Bajgar et al., (2019) “Industry Concentration in Europe 
and North America”  

Figure 2.16: Mean price cost margins in manufacturing and services  

Source:  Gradzewicz, M., & Muck, J. (2019). Globalization and the fall of mark-ups. Notes: 2014 data with fixed 
capital stock; averages over 18 EU countries. 
Market power can be effectively used by firms to partition the Single Market. New evidence50 
has provided very precise measurements of price dispersion for products sold by firms with market 

49  See, for example, Autor et al 2017 and Van Reenen 2018.  
50   Francois  Fontaine,  Julien  Martin  and  Isabelle  Mejean  (2019)  “Price  Discrimination  within  and  across  EMU  Markets:  Evidence  from 
French Exporters”, NBER working Paper 26246 at http://www.nber.org/papers/w26246 

25 

 
 
 
                                                           
 
power. On average, prices for a sample of goods vary 30 % around the average price across buyers. 
Although  other  factors  contribute  to  explain  this  dispersion,  it  is  estimated  that  one  third  of  this 
variation is due to price discrimination by the seller across different buyers. It is interesting to note 
that this dispersion is lower within the Euro area suggesting that there is an effective impact of tighter 
integration on the ability of firms to price discriminate. However, this new evidence also indicates that 
price discrimination has increased with respect to the levels of 2000, i.e. a period of deepening in the 
integration process. 

Sectors suffering from competition problems 

Some sectors and markets seem to suffer particularly from competition problems. Especially in 
services and network industries, competition remains one of the areas where the Member States have 
been  reporting  limited  progress  in  the  implementation  of  Country  Specific  Recommendations.  This  
finding  corresponds  to  the  results  of  a  recent  Eurobarometer  survey51  on  citizens’  perceptions  of 
competition  problems  in  EU  Member  States52.  The  survey  found  that  –  across  the  EU  –  citizens 
thought  that  competition  problems  existed,  in  particular  in  telecoms  (26 %  up  by  8 %  since  2014), 
internet access (26 %), energy (23 % up by 5 % since 2014), transport services, and pharmaceutical 
products  (both  20 %).  Manufacturing  sectors,  such  as  the  automotive  industry,  have  also  suffered 
from competition problems.53 

Access  to  essential  infrastructure  remains  a  concern  in  the  gas,  electricity  and  rail  sectors. 
Effective competition in these markets relies on competitors having access to the infrastructure, which 
is  often  owned  and  operated  by  the  incumbent.  Competition  enforcement  can  play  a  role  in  this 
context,  for  example  by  intervening  against  curtailment  by  dominant  operators  of  interconnection 
capacity  between  neighbouring  Member  States.  The  Commission  furthermore  intervened  against  a 
Member State for giving the state-owned electricity incumbent privileged access rights to lignite. The 
decision imposed divestitures of a significant share of lignite capacity to competitors. In a rail case, an 
incumbent in one Member States dismantled a section of a track connecting that Member State with a 
neighbouring  Member  State,  thereby  preventing  an  oil  refinery  from  using  the  services  of  a 
competitor.  The  Commission  considered  the  conduct  abusive  and  imposed  a  fine  on  the  incumbent 
operator.  

Market functioning in sectors dominated by State Owned Enterprises (SOE) can be impacted 
by the quality of their governance. In several Member States, such enterprises dominate economic 
sectors such as transport and energy. SOEs often suffer from weak corporate governance54. The IMF’s 
analysis  shows  that  SOEs  “systematically  underperform  relative  to  private  sector  counterparts  in 
nearly all countries” and that “poor governance is at the root of the problem” 55. On SOE governance, 
the  IMF  concludes  that  the  “scope  for  improvements  is  large…,  be  it  more  independent  and 
professional boards in the companies, stricter financial reporting and auditing, or greater clarity on 
the fiscal links to SOEs”.  

Specific competition issues can arise in markets where patents play a key role or where profit 
generation shifts to aftermarkets. Standardisation is a crucial enabler of Single Market integration. 
In  some  areas,  standards  include  patented  technologies,  such  as  in  telecommunication.  Special 

51  See  Flash  Eurobarometer  476  survey,  carried  out  by  Kantar  Public  Brussels.  Some  26 570  respondents  from  different  social  and 
demographic groups were interviewed via telephone (landline and mobile phone) in their mother tongue. 
52 The survey was carried out between 21 and 25 January 2019.  
53  Since  2013  the  Commission  has  adopted  eleven  cartel  decisions  which  covered  over  30  different  car  parts  and  resulted  in  fines  of 
EUR 2.15 billion. 
54    See  OECD  Recommendation  of  the  Council  on  Guidelines  on  Anti-Corruption  and  Integrity  in  State-owned  Enterprises  at: 
http://www.oecd.org/corporate/OECD-Guidelines-Anti-Corruption-Integrity-State-Owned-Enterprises.htm 
55 For the full report see “Reassessing the Role of State-Owned Enterprises in Central, Eastern and Southeastern Europe”, IMF Departmental 
Paper No.19/11, published on 19 June 2019.  

26 

 
 
                                                           
guidance  exists  to  prevent  competition  problems  to  arise  in  this  situation56.  In  addition,  a  holistic 
policy  has  been  developed  to  support  innovation  and  standardization  while  improving  access  to 
standardised  technology57.  Attempts  to  impede  market  entry  by  generic  or  biosimilar  products  on 
expiry  of  patent  protection  have  been  identified  in  the  pharmaceutical  and  biotech  sectors.  In 
manufacturing,  increasing  revenue  streams  generated  in  aftermarkets  affect  the  competition 
landscape. In mature manufacturing sectors, producers are under pressure to generate more value from 
aftermarkets  and  from  activities,  such  as  financing.  Together,  these  trends  lead  them  to  focus  on 
bundling the main product with finance and repair and maintenance options, all payable on a periodic 
basis.  Those  trends  can  generate  competition  issues,  mainly  relating  to  customer  lock-in  and  the 
foreclosure of competing aftermarket providers.  

Enforcing competition rules at Member States’ level  

Member States and the European Commission share responsibility for promoting competition. 
Since the 2004 reform of EU antitrust rules,58 national competition authorities (NCAs) and national 
courts have the power to apply the EU competition rules to anti-competitive agreements and abuses of 
dominance  affecting  trade  between  Member  States.  Since  then  the  NCAs  have  become  essential 
enforcement  partners  of  the  Commission,  accounting  for  more  than  90 %  of  all  decisions  tackling 
conduct  and  agreements  that  infringe  EU  competition  rules.  From  1  May  2004  until  31  December 
2018,  NCAs  adopted  around  1 100  decisions  under  Articles  101  and  102  TFEU.  These  decisions 
protected  competition  by  ordering  termination  of  infringements,  imposing  fines  or  accepting 
commitments59. 

National  competition  agencies  have  focused  on  manufacturing,  network  industries  and  digital 
markets. The NCAs have been particularly active enforcers in the manufacturing sector. This largely 
reflects  the  focus  on  fighting  cartels,  as  they  often  concern  intermediate  and  input  goods  in  the 
manufacturing  sector.  It  also  includes  active  enforcement  in  the  pharmaceutical  sector.  This  sector 
remains  a  matter  of  priority  and  NCAs  have  vigorously  investigated  and  sanctioned  restrictive 
practices  that  lead  to  higher  prices  for  pharmaceuticals60.  The  NCAs  also  concentrated  on  network 
industries,  such  as  telecoms,  media,  energy  and  transport  supporting  the  liberalisation  process  or 
ensuring  a  more  competitive  environment  in  the  post-liberalisation  era.  These  sectors  are  often 
characterised  by  high  market  concentration  and  the  presence  of  dominant  operators  and  previous 
incumbents. Digital markets were a key enforcement area for NCAs. Alongside the Commission, the 
NCAs have become active enforcers in digital (or digitalised) markets and play an important role in 
tackling Single Market obstacles in the new economy. Considering the ever-increasing digitalisation 
of  the  economy,  it  is  expected  that  competition  in  digital  markets  will  remain  in  the  focus  of  the 
enforcement activity of NCAs. Recent NCA's enforcement activity by sector broadly corresponds to 
the  restrictions  of  competition  identified  in  the  European  Semester  process  as  well  as  in  the 
Eurobarometer survey mentioned above. 

National competition enforcement is expected to intensify and to expand its range. The NCAs’ 
powers and independence have been reinforced through the adoption of the so-called ECN+ Directive 
in  2019,  a  development  that  can  be  expected  to  result  in  increased  competition  enforcement  in  the 

56 See  “Guidelines on the applicability of  Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation 
agreements” 2011/C 11/01 of 14 January 2011. 
57 See “Setting out the EU approach to Standard Essential Patents,” COM(2017)712 of 29 November 2017. 
58 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 
82 of the Treaty, OJ L 1, 4.1.2003, p. 1–25.  
59 See: http://ec.europa.eu/competition/ecn/statistics.html   
60  See  also 
https://ec.europa.eu/competition/publications/reports/kd0718081enn.pdf  

in  the  pharmaceutical  sector  (2009-2017),  available  at: 

the  Commission  Report  on  Competition  enforcement 

27 

 
 
                                                           
Single  Market61.  For  example,  once  implemented,  the  ECN+  Directive  provides  NCAs  with  an 
effective enforcement toolbox and powers to operate in a digital environment, where wrongdoing is 
increasingly implemented through a range of technologies (e.g. chats, cloud services, algorithms and 
AI).  The  Commission  has  encouraged  the  NCAs  to  develop  their  investigative  capabilities  further, 
using data analysis solutions in view of the continued digitalisation of the European economy. Finally, 
the NCAs also drive market reforms through advocacy activities. The NCAs carry out market research 
and  studies  and  issue  advocacy  reports  to  the  respective  Member  State  governments  supporting 
progress  to  a  more  competitive  environment.  Such  studies  and  advocacy  initiatives  are  also 
informative of the state of competition in individual Member States62.  

Conclusions 

Weak  competition  in  some  sectors  and  markets  forestalls  consumers  and  businesses  from 
reaping the benefits of the Single Market. Effective competition prevents market partitioning and 
improves market functioning and thus guarantees that firms and consumers fully benefit from Single 
Market integration. Competition problems remain in some markets, such as those relying on essential 
infrastructure,  dominated  by  (State-owned)  incumbents  or  characterised  by  winner-take-it-all 
economics.  More  generally,  increasing  market  power  and  markups  indicate  that  technological 
progress  and  structural  economic  changes  do  not  automatically  entail  stronger  competition.  This  in 
turn points to the existence of impediments to the diffusion of technology and knowledge. Up-to-date 
competition  rules  and  their  effective  enforcement  on  EU-  and  national  level  thus  remain  vital 
instruments to safeguard market functioning across the Single Market. 

3. SPECIFIC MARKET ISSUES 

a. ENERGY, INFRASTRUCTURE AND ENVIRONMENT 

The  Single  Market  provides  a  unique  opportunity  for  achieving  environmental  objectives.  By 
creating  a  space  where  products  and  services  are  accessible  freely  across  borders  of  EU  Member 
States, the Single Market offers many opportunities to pool resources and knowledge, and to benefit 
from economies of scale to advance on major environmental challenges. Single Market instruments 
offer  a  large  variety  of  benefits  both  to  businesses  and  consumers  with  regard  to  efficiency  and 
effectiveness  in  reaching  environmental  goals  while  providing  for  improved  competitiveness  and 
creating more jobs. These institutions offer a horizontal and joined action that could be more effective 
than fragmented approaches, even if some Member States chose to advance further than others. Single 
Market harmonization mechanisms can provide benefits in particular to the following concerns: safety 
of  chemicals,  energy  efficiency  and  environmental  performance  of  goods,  uptake  of  secondary  raw 
materials, as well as availability and affordability of environmental goods and services. 

61 Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the 
Member States to be more effective enforcers and to ensure the proper functioning of the internal market, OJ L 11, 14.1.2019, p. 3–33. The 
Member States are required to transpose the ECN+ Directive into national law by 4 February 2021. 
62 The opinion issued by the French NCA concerning regulated legal professions is an example of successful competition advocacy action. 
See the 2019 country report for France under the European Semester: “For example, in January 2015, the Authority published an opinion on 
regulated legal professions (such as notaries and bailiffs) finding to be imperative that those professions were modernised and opened up to 
competition. The Authority then issued 80 recommendations to reform the legal professions (such as lifting restrictions on qualified legal 
professionals to set up shop freely and introducing more cost-based and flexible pricing), most of which were reflected in the final Macron 
law of 2015”. 

28 

 
 
 
 
                                                           
 
 
Energy markets 

In  the  internal  electricity  markets  significant  progress  with  cross-border  electricity  trade  has 
been  made.  Electricity  can  be  traded  via  a  central  EU  system  (‘market  coupling’)  which  already 
covers  more  than  80 %  of  EU  electricity  volumes.  New  electricity  interconnectors  have  increased 
exchanges  in  regions  previously  not  much  connected  (e.g.  Baltic  region,  Spain).  However,  despite 
their  physical  contiguity,  some  regions  remain  less  connected  (e.g.  Czechia,  Hungary,  Romania  or 
Slovakia). 

Figure 3.1: Electricity market coupling 

Source: Agency for the Coordination of European Energy Regulators (ACER)  

However,  problems with opening electricity  markets  persist. Market  concentration remains  very 
high in many Member States, making entry of new competitors difficult. State interventions such as 
capacity mechanisms (i.e. subsidies to generators for backup capacity) which are not open to cross-
border  participation  or  state-regulated  prices  hamper  electricity  trade  between  Member  States. 
Furthermore, large parts of cross-border infrastructure still cannot be used due to national practices to 
block  cross-border  exchanges,  and  competition  between  operators  from  different  Member  States 
remains underdeveloped. Some countries still apply export restrictions, and according to the Agency 
for  the  Coordination  of  European  Energy  Regulators  (ACER),  more  than  50 %  of  cross-border 
electricity lines are not made accessible by national grid operators for cross-border trade of electricity. 

Figure 3.2: Market share of the largest generator in the electricity market 

Source: European Commission 

29 

 
 
 
 
 
 
Wholesale  gas  markets  continued  their  positive  development  in  terms  of  price  convergence 
between markets, hub-based pricing and increased traded gas volumes. Concentration and traded 
volumes improved on almost all established and advanced gas hubs, i.e. mainly located in North-West 
Europe. However, liquidity is still heavily concentrated at some gas trading places, notably the “NBP” 
(UK) and “TTF” (Netherlands) hubs. This shows that not all Member States benefit from the internal 
gas market. Shortcomings in the functioning of competition remain, especially in South-East Europe 
which shows still more oil-linked supply contracts, little traded volumes, low but improving levels of 
interconnection  and  delayed  or  insufficient  implementation  of  the implementing  legislation  that  has 
been  adopted  to  remove  trading  obstacles  (so-called  “Network  Codes”).  Some  countries  still  apply 
price  regulation  elements  to  gas  producers,  which  should  be  phased  out  to  allow  competition  to 
flourish.  Obligations  for  dominant  companies  to  give  access  to  gas  (so-called  “Gas  release 
programmes”) could be a way to kick-start wholesale competition in less developed markets. 

Figure 3.3: Gas price convergence 

Source: Agency for the Coordination of European Energy Regulators ACER 

Competition  in  energy  retail  markets  remains  limited.  Competitive  retail  markets  for  electricity 
and gas play an important role in ensuring that consumers benefit from low prices, high standards of 
service, and a wide selection of offers. They are especially important for the emergence of new energy 
services  that  will  help  the  energy  system  become  more  flexible  and  better  adapted  to  renewable 
energy  sources.  Despite  this,  high  levels  of  market  concentration,  growing  gaps  between  retail  and 
wholesale  prices,  and  low  levels  of  innovation  are  leading  to  persistently  low  levels  of  consumer 
satisfaction in the energy sector. 

New  entrants  to  the  retail  markets  for  electricity  and  gas  face  a  broad  range  of  hurdles  in 
establishing  themselves  and  operating  in  the  EU.  For  instance,  energy  suppliers  and  service 
companies in many Member States need to obtain a license from national authorities before beginning 
operations.  They  need  to  contract  with  transmission  or  distribution  system  operators  to  serve 
customers connected to the grid and get access to metering data. They may face sector specific billing 
or customer switching requirements. And access to the energy wholesale and short-term (“balancing”) 
markets  requires  some  prior  agreement  with  the  market  operator.  Whilst  these  procedures  are 
presumably  intended  to  ensure  that  the  system  functions  properly  and  customers  benefit  from  high 

30 

 
 
 
 
 
 
 
standards  of  service,  they  are  sometimes  excessively  complex  and  time  consuming  to  carry  out, 
requiring  payments  or  financial  guarantees.  They  are  also  likely  to  bind  the  supplier  or  service 
company to operating according to certain conditions, some of which  may unduly increase costs or 
make it harder to do business. Moreover, the procedures and processes around operating in the retail 
market can differ significantly from one Member State to another, impeding cross-border entry even 
for  established  energy  suppliers  and  service  companies  within  the  Single  Market.  The  cumulative 
weight of these and other problems in energy retail markets can have a significant negative impact on 
competition and, by extension, consumer welfare, and innovation. A major study into these issues will 
be published in 2020, which could pave the way for action to address them. 

Figure 3.4: Market share of three largest suppliers (CR3) and the number of main suppliers and 
number of nationwide suppliers in retail markets for households (2017) 

Source: European Commission 

While  potential  cost-  and  CO2-savings  are  significant,  the  connection  of  the  EU’s  energy 
markets  across-borders  is  still  hampered  by  national  practices  to  prevent  cross-border 
exchanges of electricity and gas. In terms of value, gas and electricity are the most important goods 
traded within the Single Market. The potential for cost savings and emission reductions is significant, 
notably  when  Europe  is  decarbonizing  its  energy  production  and  the  need  for  backup  generation  is 
increasing.  Renewable  electricity  requires  backup  generation  available  in  times  of  no  wind  or  sun. 
Without  inter-connected  markets,  each  Member  State  will  need  to  invest  in  its  own  costly  backup 
generation (mostly fossil fuel plants). Connecting electricity markets is the best way to cope with the 
challenges to switch to renewables generation. Connecting markets can therefore avoid unnecessary 
investments into backup generation, thereby avoiding emissions and costs.  

Well-designed  capacity  mechanisms  are  needed  to  safeguard  electricity  baseload  while 
promoting electricity market integration. In 2015 and 2016 the Commission carried out a first-ever 
sector inquiry in the State aid area. This inquiry looked into capacity mechanisms that aim at ensuring 
security  of  electricity  supplies  and  may  be  necessary  when  the  market  alone  does  not  provide 
sufficient  incentives  to  invest  in  the  capacity  needed  to  meet  peak  demand.  Subsequent  State  aid 
enforcement in this area has resulted in further integration of the Single Market. Member States are 
required to take into account foreign capacity in their mechanisms. This has an important impact in 
reducing  the  competition  and  trade  distortions  of  the  schemes.  Member  States  are  also  required  to 
commit  to  make  their  schemes  responsive  to  demand,  which  increases  competition  and  reduces  the 
cost  of  the  measures.  Overall,  between  2014  and  2019,  the  Commission  has  approved  capacity 
mechanisms in eight Member States with the majority of those decisions requiring direct participation 
of  foreign  capacity.  At  the  same  time,  the  Commission’s  decisions  prepared  the  ground  for  the 

31 

 
 
 
 
 
adoption  of  the  2019  EU  Electricity  Regulation  that  now  defines  common  rules  regarding  foreign 
participation  in  capacity  mechanisms  to  be  developed,  building  on  the  Commission’s  State  aid 
practice in this area. 

Inefficiencies  in  energy  taxation  hinder  the  achievement  of  EU  objectives.  The  EU  harmonized 
framework for energy taxation contributes to avoiding double taxation or any distortion of trade and 
competition between energy sources, energy consumers and suppliers. However, a recent evaluation 
of the Energy Taxation Directive (ETD)63 identified overlaps, gaps and inconsistencies in the energy 
taxation  framework  that  significantly  hamper  the  achievements  of  EU  objectives  in  the  field  of 
energy,  environment,  climate  change  and  transport.  The  low  level  of  minimum  rates  as  well  as 
optional  tax  exemptions  granted  by  Member  States  in  the  framework  of  the  ETD  might  contradict 
other policy instruments and hamper the good functioning of the Single Market. The mandatory tax 
exemption  concerning  international  aviation  and  maritime  transport  conflicts  with  EU  climate 
objectives.  

Transport infrastructure 

Transport is a key enabler for the EU’s Single Market. In 2018, transport services had a share of 
5 % in the EU Gross Value Added. The sector represents 5.3 % of total workforce, about 11.7 million 
persons (2017). More than 50 % of the employment is in land transport, 15 % in courier services, 4 % 
in  air  and  3 %  in  water  transport64.  Transport  enables  the  free  circulation  of  goods,  passengers, 
services and workers. It ensures economic, social and territorial cohesion, and improves accessibility 
across  the  EU.  For  the  competitiveness  of  a  highly  interconnected  European  industry,  a  well-
functioning Single European Transport Area is crucial.  

The Trans-European Transport Network (TEN-T) in particular aims at ensuring cross-border 
infrastructure links, which are an essential precondition to complete the Single European Transport 
Area and to support the free circulation within the Single Market65. 

EU  and  national  transport  infrastructure  investment  is  and  remains  important  to  improve 
accessibility across Europe’s regions and their capacity to benefit from the Single Market.  In a 
forthcoming  paper,66  the  OECD  finds  that  building  new  transport  infrastructure  unlocks  trade 
opportunities. It should lead to more competition which is good for the consumer. The OECD paper 
states that transport infrastructure traversing a region improves its accessibility, which in turn tends to 
lead to an increase in the region’s stock of firms, productivity growth, more jobs and higher wages. At 
the same time, economic activity from less well connected neighbouring regions might be displaced 
and  drawn  into  the  better  connected  region.  The  OECD  estimates  that  a  1 %-improvement  in 
accessibility increases GDP by 0.2 %, employment by 0.7 % and regional population by 0.6 %.  

The economic performance of the Single European Transport Area also depends on competition 
and  market  opening  for  transport  service  providers  across  the  Single  Market.  The 
implementation of the Single Market in transport has achieved different levels of success in different 
modes. Aviation has been a success story. Air travel has substantially increased since the creation of 
the EU's Single Aviation Market 27 years ago. The number of daily flights has increased from less 
than  10 000  in  1992  to  around  23 000  in  2016.  In  addition,  passengers  now  have  access  to  more 
destinations. In 2017 there were around 7 400 routes compared to less than 2 700 in 1992. The EU 

63 Directive 2003/96/EC 
64 European Commission (2019): EU transport in figures, Statistical Pocketbook. 
65 European Commission (2017), Delivering TEN-T – facts and figures: http://www.connectingeu.eu/documents/Delivering_TEN_T.pdf.  
66 OECD (forthcoming), Leveraging transport infrastructure for regional, urban and rural development (working title), OECD Publishing, 
Paris. 

32 

 
 
                                                           
also  managed  to  create  a  strongly  competitive  market  in  international  road  haulage,  and  there  are 
promising signs in long-distance coach services. 

The integration of the rail market has for a long time been hampered by fragmented national 
rules and technical incompatibilities, delaying the transition to this less carbon-intensive public 
transportation mode. The measures introduced through the 4th Railway Package67 help the rail sector 
to  complete  market  opening  and  improve  the  interoperability  and  safety  of  national  networks.  For 
instance, the measures facilitate cross-border rail services by saving firms from having to file costly 
multiple applications in the case of operations beyond one single Member State. They also ensure that 
European Rail Traffic Management System (ERTMS) equipment is interoperable and reduce the large 
number  of  remaining  national  rules.  Finally,  they  increase  transparency  and  reduce  risks  of 
discrimination against new operators and across transport modes, hindering the migration of users to 
more sustainable transport options.  

Digitalisation  and  the  deployment  of  new  technologies  in  transport  contribute  to  making 
transport  services  faster,  safer  and  more  efficient.  New  technologies  also  mean  new  skill  and 
regulatory requirements, and changing job profiles facing the workforce in the transport sector. 

Transport  infrastructure  still  varies  considerably  across  Member  States.  Road  transport 
performance  can  be  measured  as  a  function  of  accessibility  (number  of  destinations  that  can  be 
accessed in a fixed time) over proximity (number of destinations within a fixed geographical radius)68. 
The  following  graph,  summarising  the  findings  of  a  recent  European  Commission  working  paper, 
shows  that  the  transport  performance  is  significantly  higher  in  the  Western  and  Southern  EU 
countries, than in Central and Eastern Europe. 

Figure 3.5: Accessibility, proximity and transport performance by road per country, 2016 

Source: European Commission 

Overall, the performance of the European transport sector in global comparison is very good.69 
Several EU countries are among the top performers worldwide (e.g. Germany and the Netherlands). 

67 Regulation (EU) 2016/796, Directive (EU) 2016/797, Directive (EU) 2016/798, Regulation (EU) 2016/2338, Directive 2016/2370/EU, 
Regulation (EU) 2016/2337. 
68 https://ec.europa.eu/regional_policy/sources/docgener/work/2019_02_road_transport.pdf.  
69 The perception of EU businesses regarding the quality of the transport services is presented in the World Bank’s Logistics Performance 
Indicator and the World Economic Forum’s indicator for infrastructure quality. 

33 

 
 
 
 
                                                           
Yet, the situation in the EU is heterogeneous and potentially jeopardises transport connectivity in the 
Single Market. In particular, countries that have joined the EU since 2004 still need to catch up with 
the performance level of older Member States. At the same time, the weak performers tend to have the 
highest public investments in transport infrastructure as a share of their GDP. Returns on investments 
in transport infrastructure often become visible only in the long term. High quality infrastructures are 
essential to build a modern integrated system that can transport people and goods efficiently, safely 
and  sustainably  and  strengthens  the  EU’s  global  competitiveness.  Multimodality  remains  key  for  a 
more sustainable, low-emission, less congested and hence more competitive EU transport system.   

The environmental impact of the Single Market 

There are increasing concerns about sustainability of growth and challenges of climate change. 
Growth  has  been  resource  intensive  in  the  past.  The  demand  for  land,  water,  bio-diversity,  mineral 
and bio-based raw materials stemming from economic activities has tripled since the 70s and is still 
growing.  According  to  recent  estimates,  extraction  and  processing  of  natural  resources  account  for 
around 90 % of biodiversity loss and 50 % of greenhouse gasses (GHG) emissions. Increased use of 
secondary  raw  materials  can  significantly  contribute  to  easing  this  pressure.  As  a  result,  the  Single 
Market must be adapted to new realities.  

The  transition  towards  climate-neutrality,  decarbonisation and  more circular  business  models 
represents an unprecedented challenge for society and for industry.  Energy intensive industries 
operate in a complex environment, often with interlinked value chains, and are exposed to increasing 
international  competition.  The  recent  evaluation70  of  the  Energy  Taxation  Directive  concluded  that 
initially the directive made a positive contribution towards achieving its main objectives of ensuring 
the proper functioning of the Single Market, avoiding double taxation or any distortion of trade and 
competition  between  energy  sources,  energy  consumers  and  suppliers.  However,  the  evolution  of 
technological change, national tax rates and energy markets over the past 15 years has rendered the 
directive in its present form insufficient to tackle new challenges, including the environmental ones. 
Therefore, a  successful transition to a sustainable growth environment requires that the Energy Tax 
Directive is revised to take into account the climate challenge.  

The Circular Economy has opened up new markets, new business opportunities, and given rise 
to new business models, both domestically and outside the EU. In 2016, circular activities such as 
repair, reuse or recycling generated almost EUR 147 billion of value added while standing for around 
EUR 17.5 billion of investments71. The systemic transition towards a Circular Economy is expected to 
promote  and  support  the  creation  of  new  circular  business  models,  which  can  potentially  apply  to 
many  areas  and  sectors  of  the  Single  Market.  However,  recycled  and  remanufactured  goods  often 
struggle with recognition and equal treatment with regard to requirements imposed on products placed 
on the market for the first time. This applies to a wide range of products, from simple reused printer 
cartridges to advanced and complex articles such as industrial machinery or medical equipment.  

The Commission has adopted an ambitious Circular Economy Action Plan in 2015 to increase 
the efficiency of the resource use in the EU. The EU waste legislation has been updated72 to support 
more recycling with higher recycling targets for Member States. This aims at substantially increasing 
the amount of recovered materials placed on the market. However, at present only less than 12 % of 
overall  material  use  comes  from  secondary  raw  materials.  In  addition,  without  a  harmonized 
framework for end-of-waste materials, these will not be able to circulate freely on the internal Single 
Market as easily as the virgin materials which they are intended to substitute.  

70 SWD (2019) 329 Evaluation of the Council Directive 2003/96/EC  
71 https://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=cei_cie010&language=en    
72 https://ec.europa.eu/environment/waste/target_review.htm  

34 

 
 
                                                           
The need for a fully-fledged, well-functioning and harmonised Single Market for secondary raw 
materials and circular products has been recognized by the Council73. Currently, harmonized EU 
criteria  for  recovered  materials  have  been  adopted  only  for  iron,  steel,  aluminium,  glass  cullet  and 
copper scrap. As a result, 55 % of steel manufactured in the EU comes from scrap materials74. At the 
same  time,  many  important  waste  streams,  such  as  paper,  plastic  or  wood  do  not  benefit  from  the 
harmonized approach and their uptake by product manufacturers is severely limited. For instance, the 
signatories of the Circular Plastics Alliance were able to commit to incorporate only 10 million tons 
of recycled plastics into products, while 322 million tons of plastic waste is generated annually75 in 
the EU.  

Reaching  the  objectives  of  the  European  Green  Deal,  including  the  Circular  Economy  Action 
Plan and the Zero Pollution Strategy, as well as other environmental targets, would improve the 
Single Market performance. Environmental policy matters for the smooth functioning of the Single 
Market  and  industrial  performance  as  it  can  be  supportive  of  structural  reforms  and  sustainable 
investments. Sector-specific aspects that affect the provision of basic public services indispensable for 
sustainability and the good functioning of communities and households require special attention. For 
instance,  the  functioning  of  industry  value  chains  and  the  performance  of  sectors,  such  as  repair, 
remanufacturing,  recycling  or  innovative  materials,  require  a  better  circulation  of  secondary  inputs 
and  products  considered  as  waste  in  some  Member  States.  However,  national  conditions,  such  as 
waste  infrastructure,  are  often  too  diverse  to  allow  for  the  smooth  integration  of  these  economic 
activities in the EU.  

Figure 3.6: EU GDP impacts in the circular economy scenarios (% from baseline) 

0,60%

0,50%

0,40%

0,30%

0,20%

0,10%

0,00%

-0,10%

1a Food - Ambitious

2a Construction - Ambitious

3a Waste - Ambitious

4a Electronics - Ambitious

5a Vehicles - Ambitious

6a Combined - Ambitious

Source: European Commission 

The EU Monitoring Framework for the Circular Economy shows that the transition has helped 
put  the  EU  back  on  a  path  of  job  creation.  In  2016,  sectors  relevant  to  the  Circular  Economy 
employed  more  than  four  million  workers,  a  6 %  increase  compared  to  2012.  Additional  jobs  are 
bound  to  be  created  in  the  coming  years  in  order  to  meet  the  expected  demand  generated  by  fully 
functioning markets for secondary raw materials76. In particular, by moving towards a more circular 

73 Council conclusions on Renewed Industrial Policy Strategy, 2030  -   
74 Bureau of International Recyling, World Steel Recycling in Figures 2013– 2017, page 13 
75 htpps://ec.europa.eu/Eurostat/statistics-explained/index.php/waste_statistics 
76 European Commission (2018), Impacts of circular economy policies on the labour market. https://op.europa.eu/en/publication-detail/-
/publication/fc373862-704d-11e8-9483-01aa75ed71a1 

35 

 
 
 
 
                                                           
 
economy, GDP in the EU is expected to increase by almost 0.5 % by 2030 (see figure 3.6) and jobs by 
approximately 700 000. This happens mostly through additional labour demand from recycling plants, 
repair  services  and  rebounds  in  consumer  demand  from  savings  generated  through  collaborative 
actions. 

The role of standards: improving environmental performance and consumer protection  

Societal  demand  for  sustainable  development  is  an  opportunity  for  companies  to  promote 
Circular Economy processes and new products responding to consumers’ interest in sustainable 
consumption. However, some harmonisation of the various green labels would be beneficial. Three 
out  of  ten  citizens  come  across  misleading  environmental  claims77.  There  are  more  than  465 
environmental labels worldwide, out of which more than 100 are active in Europe, however not all of 
them  are  equally  reliable.  A  proliferation  of  rules,  methods,  initiatives,  and  labels  can  lead  to 
fragmentation.  This  results  in  mistrust  and  confusion  regarding  the  environmental  performance  of 
products which hampers a wider uptake of environmentally better products.  

At the core of the Single Market, standardisation plays a key role to further the EU sustainable 
development  agenda.  Standards  are  voluntary  technical  specifications.  They  are  essential  to  steer 
businesses towards sustainable development goals as they act as bridges linking legal provisions with 
down-to-earth technical practice. As a second dividend, standards also contribute to competitiveness 
by reducing production costs and increasing market size. For these reasons, standardisation can help 
developing  innovative  products  and  production  process  that  are  based  on  recent  technological 
progress  and  contribute  to  energy  efficiency,  enhanced  recycling,  and  sustainable  production.  The 
clearest  examples  of  the  role  of  standards  in  promoting  the  sustainable  development  agenda  are 
“Ecodesign”  and  the  Energy  Labelling  policy  framework.  Priority  areas  highlighted  in  recent  work 
programmes  concern  standards  on  the  environmental  impact  in  transport  and  energy  use  (e.g. 
hydrogen  as  alternative  fuel,  batteries  sustainability,  and  tyre  performance  testing),  green  shipping,  
steel production, reduction of plastics waste and chemicals (fertilisers) testing.  

Ensuring a good energy and environmental performance of products and processes is already 
possible thanks to the Single Market, including harmonised standards. The EU Eco-Design and 
Energy  Labelling  Directives  provide  a  harmonised  methodology  to  measure  and  promote  best 
performing  products,  as  well as to  phase  out  from  the  market  the  worst  performers.  The labels  and 
standards bring annual energy savings of around 150 Mtoe (million tonnes of oil equivalent), roughly 
equivalent to the annual primary energy consumption of Italy. For consumers, this means an average 
saving of up to EUR 285 per year on their household energy bills. This is supplemented by the EU 
legislation  on  ecodesign  which  sets  mandatory  minimum  requirements  for  energy  efficiency  and 
circular  economy  for  a  wide  array  of  consumer  and  industrial  products.  This  eliminates  the  least 
performing  products  from  the  market,  further  contributing  to  the  EU’s  energy  efficiency  objective. 
Over the years, most of the existing 40 product-specific and horizontal ecodesign and energy labelling 
regulations have been complemented with one or more corresponding measurement standards. Most 
of  these  standards  have  become  harmonised.  Since  2009,  ecodesign  regulations  and  standards  are 
delivering substantial energy savings and are thus avoiding the associated CO2 emissions. In addition, 
they  are  increasing  material  efficiency  savings.   The  October  2019  package,  that  includes  ten 
ecodesign  and  six  energy  labelling  measures,  will  bring  about  annual  energy  savings  by  2030 
equivalent to the annual electricity consumption of Denmark.  

77 European Commission (2014), Consumer market study on environmental claims for non-food products 

36 

 
 
 
 
                                                           
In  the  construction  sector,  the  EU  has  introduced  legislative  measures  to  increase  energy 
performance  of  buildings  as  well  as  labelling  requirements  on  construction  products.  So  far, 
EDD78  secondary  regulations  have  been  approved  for  five  construction  products.  In  addition,  the 
EED, EPBD and RESD79 were all enacted in the context of the EU commitment to become a highly 
energy-efficient and low carbon economy. As buildings enshrine a large energy saving potential, all 
the three Directives aim – to a greater or lesser degree – at tapping into this potential. In the context of 
the Construction 2020 Strategy and specifically its thematic objective on resource efficiency, multi-
stakeholder cooperation has resulted in awareness raising regarding the treatment of construction and 
demolition  waste  and  the  use  of  the  built  environment  as  a  material  bank.  Circular  economy  in 
construction and the built environment offers opportunities not only in the material scale but also in 
the  reuse  of  equipment,  buildings  and  infrastructures  through  refurbishment  and  adaptive  reuse. 
Emerging models with multiple environmental and socio-economic benefits, such as green roofs, are 
opening opportunities for the built environment to generate resources other than energy. 

Green public procurement 

Consistent  green  purchasing  criteria  across  Member  States  would  increase  the  uptake  by  the 
public  sector  as  well  as  improve  the  Single  Market  for  environmentally  sound  goods  and 
services. The Commission has developed EU Green Public Procurement (GPP) criteria for 19 goods 
and  service  groups.  Green  public  procurement  allows  public  authorities  to  achieve  environmental 
targets and to stimulate upcoming markets related to the circular economy transition, as well as with 
regards  to  specific  sectors’  transitions  such  as  transport,  energy  and  food.  The  criteria  used  by 
contracting authorities should be similar to avoid a distortion of the Single Market and a reduction of 
EU wide competition. 

Figure 3.7: Illustration of policy instruments aimed at sustainable products 

Source: European Commission 

78 Eco-Design Directive 
79 Energy Efficiency Directive, Energy Performance of Buildings Directive, and Renewable Energy Sources Directive 

37 

 
 
 
 
 
                                                           
Safety of chemicals 

Chemical  Safety  remains  a  major  success  story  of  taking  a  Single  Market  approach  towards 
environmental  challenges.  Reflecting  the  increasing  role  that  chemicals  play  in  our  society  and 
economy and illustrating the continuous commitment to ensuring a high level of protection of human 
health and the environment, as well as ensuring the free movement of chemicals on the Single Market, 
the  EU  chemicals  legislation  has  evolved  and  expanded  significantly  since  the  adoption  of  the  first 
chemicals  related  directive  in  the  late  1960s.  It  now  regulates  both  the  chemical  sector  as  well  as 
related downstream industries that use chemicals. It covers the full lifecycle of products manufactured 
in  or  imported  into  Europe  and  the  protection  of  the  environment  and  human  health,  including 
workers’ health and safety protection, from chemical hazards and risks. The framework is composed 
of  more  than  40  pieces  of  legislation,  including  such  well  recognised  pieces  as  REACH80,  CLP81, 
OSH82  and  RoHS83    among  others.  The  recent  two  evaluations  concluded  that  the  EU  chemicals 
legislation  overall  meets  its  objectives  in  terms  of  risk  and  hazard  assessment  and  management  of 
hazardous chemicals in a coherent and efficient way84. 

The EU chemicals legislation has been instrumental in ensuring free circulation of substances, 
mixtures and articles through harmonisation of standards and requirements. To a large degree, 
there is a level playing field in Europe, and chemicals legislation has strengthened the Single Market 
and enhanced the competitiveness of EU industry as reflected in the growth in intra-EU trade85. 

Conclusions 

While  significant  progress  has  been  achieved  in  respect  to  the  integration  of  energy  markets, 
more  efforts  are  needed  to  further  enhance  cross-border  energy  trade  and  competition.  The 
potential for cost- and CO2-savings from integrating the EU’s energy markets is significant. Yet, high 
market concentration and regulatory hurdles in many  Member States are still making it difficult for 
new  competitors  to  enter  the  electricity  and  gas  markets.  Moreover,  differences  in  procedures  and 
processes for operating in the retail market among Member State impede cross-border entry also for 
established  suppliers.  Member  States  could  still  do  more  to  enhance  cross-border  energy  trade 
including by better using existing infrastructure.  

Investments in high quality infrastructures are essential to build a modern integrated transport 
system that can transport people and goods efficiently, safely and sustainably and strengthens 
the  EU’s  global  competitiveness.  The  Trans-European  Transport  Network  (TEN-T)  in  particular 
aims at ensuring cross-border infrastructure links, which are an essential precondition to complete the 
Single  European  Transport  Area  and  to  support  the  free  circulation  within  the  Single  Market. 
Digitalisation  and  the  deployment  of  new  technologies  in  transport  may  contribute  to  making 
transport services faster, safer and more efficient. 

The  Single  Market  provides  a  unique  opportunity  for  achieving  environmental  objectives. 
Europe  must  lead  the  transition  towards  climate-neutrality,  decarbonisation  and  a  more  circular 

80  Regulation  (EC)  No  1907/2006  of  the  European  Parliament  and  of  the  Council  on  the,  Evaluation,  Authorisation  and  Restriction  of 
Chemicals (REACH). 
81 Regulation (EC) No 1272/2008 on the classification, labelling and packaging of substances and mixtures (CLP Regulation). 
82  In  particular  the  Framework  Directive  89/391/EEC,  the  Chemical  Agents  Directive  98/24/EC  and  the  Carcinogens  and  Mutagens 
Directive 2004/37/EC. 
83 The Restriction of Hazardous Substances Directive 2002/95/EC and subsequent amendments. 
84  In  2018  and  2019  the  Commission  concluded  on  two  ambitious  REFIT  exercises  which  together  covered  all  the  EU  chemicals  safety 
legislation. [SWD(2019) 199final and SWD(2018) 58 final. 
85 The intra-EU sales of chemicals increased from EUR 219 billion in 2006 to EUR 280 billion in 2016 (+28 %). Domestic sales (sales in the 
home country) dropped from EUR 184 billion in 2006 to EUR 81 billion in 2016 (-56 %). Extra-EU exports increased from EUR 102 billion 
in 2006 to EUR 146.2 billion in 2016 (+43 %). Source: CEFIC Facts and Figures Report, 2017 

38 

 
 
 
 
 
                                                           
business economy and the Single Market plays  an important role in achieving these objectives. The 
Single Market offers many opportunities to pool resources, knowledge and benefit from economies of 
scale  to  advance  on  major  environmental  challenges.  The  Commission  has  proposed  a  “European 
Green Deal” that together with the circular economy action plan of 2015, the zero pollution strategy 
and  new  environmental  targets  will  require  further  improvements  the  performance  of  the  Single 
Market.  In  some  sectors,  public  purchasers  constitute  a  significant  share  of  the  market  and  public 
procurement  can  therefore  make  an  important  contribution  to  achieving  environmental  targets  by 
promoting sustainable products and services. Chemical safety remains a major success story of taking 
a Single Market approach towards environmental challenges. 

b. PUBLIC PROCUREMENT  

Every year Member States publish more than 200 000 calls for tenders for more than EUR 500 
billion  at  EU  level.  The  buying  of  works,  goods  or  services  by  public  bodies  accounts  for 
approximately  14 %  of  EU  GDP86.  In  some  sectors  of  the  economy  such  as  health,  education, 
infrastructure,  or  waste  management,  public buyers are  major investors  and  the principal  buyers.  In 
the  defence  field,  the  value  of  public  procurement  using  the  EU  defence  and  security  procurement 
rules has increased from EUR 22 million in 2011 to EUR 14 billion in 2018.  

The Single Market for public procurement has been developing gradually over the last decades. 
The  Union’s  public  procurement  rules  were  significantly  modernised  with  the  adoption  of  the  new 
generation of the revised Directives in 201487. Thanks to this new framework, public authorities have 
greater  flexibility  to  tailor  their  tenders  to  specific  needs  and  expectations  from  citizens  while 
ensuring  fair  competition.  Public  buyers  have  been  empowered  to  effectively  contribute  to 
sustainability and social inclusion, as well as to stimulate innovative dynamics through demand side 
innovation  across  different  sectors.  This  allows  for  a  more  strategic  role  of  public  procurement  in 
delivering  wider  policy  objectives.  Moreover,  the  new  rules  boosted  the  transition  to  electronic 
procurement, thus fostering the use of digital technologies and improving the transparency of public 
purchases. 

The monitoring and assessment of the public procurement market has to take into account the 
diversity  of  its  objectives.  Openness,  transparency  and  equal  treatment  are  preconditions  for  more 
competition,  better outcomes  and  value for  money  of  public  spending.  Digital  procurement furthers 
transparency, reduces costs and increases competition. The inclusion of strategic procurement allows 
public  buyers  to  cater  for  a  diversity  of  specific  social,  economic  and  environmental  needs. 
Ultimately, the good performance of the public procurement activities relies on the professionalisation 
of  the  public  procurement  practice  and  close  cooperation  of  policy  makers  and  public  buyers  to 
deliver best outcomes.   

Openness and transparency in public procurement  

The  overall  transparency  of  public  purchases  is  increasing  in  most  Member  States.  There  has 
been  a  significant  rise  in  the  number  of  calls  for  tenders  published  on  Tenders  Electronic  Daily 
(TED),  the  dedicated  EU  platform,  between  2016  and  2018.  Although  the  overall  trend  for  the  EU 
shows an improvement in the publication rate,88 the level varies greatly across Member States. The 
value  of  procurement  published  in  TED  increased  most  notably  in  Hungary,  Poland,  France,  and 

86 More than 2 trillion euro in 2017. 
87 https://ec.europa.eu/growth/single-market/public-procurement_en 
88  Estimated  value  of  tenders  published  in  TED  as  percentage  of  GDP.  It  reflects  the  value  of  national  public procurement  advertised to 
businesses, i.e. the access and openness of public procurement markets. 

39 

 
 
 
                                                           
Lithuania89. Strong deterioration however is observed in Malta, Croatia, Slovakia and Luxembourg. In 
some Member States, like Germany and Spain, the publication level continues to be lower than the 
estimated sizes of their public procurement markets. 

Figure 3.8: Publication rate (value of procurement published in TED as a share of the GDP) 

12,0

10,0

8,0

6,0

4,0

2,0

0,0

U
H

L
P

V
L

G
B

K
U

K
S

E
E

T
L

R
H

K
D

E
S

I

O F
R

R
F

I

Z S
C

U
E

E
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T
I

L
N

S
E

T
M

T
A

E
I

U
L

Y
C

E
D

L
E

T
P

2017

2014

2014-2017 average

Source: European Commission 

Wide discrepancies in the single bidder ratio point to uneven functioning of procurement, not 
only  across  countries  but  also  across  regions  within  countries.  Despite  the  positive  trend  in 
transparency  and  openness,  competition  in  procurement  is  decreasing.  The  larger  number  of 
competitors is a key driver for achieving better value for money and more suitable offers. Figure 3.9 
shows that overall there is an increasing proportion of tenders with a single bid at EU28 level between 
2009 – 2018, climbing-up to 35 % in 2018. This indicates that the magnitude of lost opportunities in 
terms of value for money is growing over time. The root causes cannot be limited to publication rates 
and used procedures. The number of submitted bids, however, reveals a mixed image on the level of 
competition  across  Member  States.  In  2018  the  percentage  of  procedures  with  only  one  bid  varies 
from 10 % in Sweden, to more than 40 % in Poland, Cyprus, Czechia, and Hungary. 

Figure  3.9.  Percentage  of  awards  of  contract  per  country  for  which  there  was  a  single  bid 
(excluding frameworks and contracts in frameworks) 

60%

50%

40%

30%

20%

10%

0%

L
P

Z
C

Y
C

I

U S
H

U
E

V
L

O
R

L
E

K
U

T
I

G
B

U
L

K
S

R
H

T
L

S
E

E
B

E
E

T
P

E
D

R
F

L
N

I

T F
A

E
I

K
D

T
M

E
S

2018

Average 2009 - 2018

Source: European Commission  
Note: The latest available data for Slovenia is from 2016 

89 2017 vs. average 2014 - 2017 

40 

 
 
 
 
                                                           
Member  States  overuse  non-competitive  procurement  procedures.  Procurement  rules  provide 
flexibility  to  public  buyers  for  the  type  of  procedure  to  be  applied.  While  the  open  procedures 
following  a  publication  in  TED  provide  for  most  transparency  and  competition,  the  negotiated-
procedure-without-prior-publication  (NOC)  is  very  restrictive  and  can  be  used  only  in  specific 
situations. In 2018, around 5 % of the EU tenders were made under the NOC procedure and the trend 
is relatively stable over the last ten years. However, in Cyprus, Bulgaria, Slovenia, and Romania the 
share of these restrictive procedures is above 20 %. 

However,  the  cross-border  involvement  in  public  procurement  markets  within  the  EU  is 
increasing.  Cross-border  contracts  (direct  or  indirect  i.e.  through  a  subsidiary)  represented 
approximately a quarter of the number of awarded contracts in the EU and of the total value of the 
contracts between 2009 and 2015.  

On average, SMEs win 55 % of the contracts published in TED, however this does not reflect 
their share in the EU economy. The available data shows significant discrepancies between Member 
States. In Malta, Latvia, Cyprus, and Estonia at least 80 % of the tenders are won by SMEs, while in 
Spain, Italy, Greece, Belgium, and Romania this share is below 40 %. 

Digital procurement market 

E-procurement is a key element of the EU's Digital Single Market strategy. With the adoption of 
the 2014 Directives, procurement documents must be accessible electronically and a link included in 
the  TED  notices  is  mandatory.  Since  October  2018,  economic  operators  must  submit  tenders 
electronically.  In  line  with  the  eInvoicing  Directive,90  contracting  authorities  are  obliged  to  accept 
electronic invoices compliant with the EU standard since April 201991. 

The  move  towards  mandatory  eSubmission  has  greatly  helped  to  make  procurement  more 
transparent. In all Member States the electronic submission of bids is available by now except for 
Bulgaria. In some countries eSubmission is mandatory also for tenders below the EU thresholds, like 
Portugal or Italy. In others, like the Netherlands or Finland, it is mandatory only above the thresholds. 
In  practice,  public  buyers  make  use  of  eSubmission  below  the  EU  thresholds  in  those  countries  as 
well.  Moving  towards  mandatory  eSubmission  contributed  to  better  transparency  as  the  number  of 
call for tenders from EEA buyers on TED have increased by 26 % from 2016 to 2018 (from 173 029 
to 218 569). 

Digitalisation  of  public  procurement  considerably  increased  the  efficiency  of  the  system.  The 
new  rules,  including  a  new  electronic  self-declaration  for  bidders  (ESPD),  pave  the  way  for  the 
digitalisation  of  public  procurement,  which  will  considerably  increase  the  efficiency  of  the  public 
procurement  system.  From  2016  to  2019,  more  than  45  ESPD  services  have  been  implemented  in 
around 28 countries in the European Economic Area (EEA). Some of the Member States, like Finland 
or France, took the chance to connect their ESPD service to national databases to achieve the Once-
Only  Principle  (OOP)  and  many  others  have  plans  to  do  so.  The  Ministry  of  Finance  in  Finland 
estimated that the elimination of the obligation to provide evidence would save EUR 6.8 million for 
suppliers and that the savings on the buyers’ side are even more significant.  

Significant  annual  benefits  are  expected  through  the  use  of  eInvoices.  eInvoices  are  easier  to 
process, they reach the customer faster and can be stored centrally at very low cost. Some Member 
States apply the eInvoicing Directive also for tenders below the EU thresholds. Ten Member States 

90 Directive 2014/55/EU of the European Parliament and of the Council of  16 April 2014 on electronic invoicing in public procurement:    
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0055  
91 If the prolongation was not used for sub-central level until April 2020. 

41 

 
 
 
 
 
                                                           
(among them Austria, France or Portugal) went further. They not only accept electronic invoices but 
also make the sending of electronic invoices mandatory.  

Figure 3.10: Overview of the digital procurement capabilities gained in Member States 

Source: European Commission 

The  new  technologies  brought  new  opportunities  but  also  challenges  that  cannot  be  ignored. 
Emerging  technologies  have  already  a  huge  impact  on  the  public  procurement  system.  Artificial 
Intelligence will naturally be a priority in terms of its significant transforming potential. However, the 
digital transformation comes hand by hand with cybersecurity concerns and requires management of 
complex digital infrastructure. In addition, the joint work on eForms and on eProcurement Ontology 
shows that improving the quality of the data remains a constant and relevant challenge for informed 
decision making.  

The  European  Commission  has  put  in  place  several  tools  to  facilitate  the  integration  of  the 
Single Market for public procurement. To this purpose, a very important contribution is played by 
widely  used  information  portals  (TED  and  eCertis92),  as  well  as  technical  specifications  aiming  at 
ensuring  interoperability  between  systems  used  by  Member  States  (the  eInvoicing  standard,  the 
eForms,  the  ESDP  data  model,  and  the  validation  tool  for  beneficiaries  of  EU  funding).  The 
Commission has also set up an expert group to facilitate exchanges between Member States to foster 
the development of common approaches to the challenges of digital procurement. 

Strategic procurement  

Public buyers in Member States do not use sufficiently public procurement to pursue strategic 
objectives,  although  support  measures  for  green,  social  or  innovative  public  procurement  are 
growing.  Implementing  strategic  public  procurement  requires  contracting  authorities  to  include 
qualitative and functional criteria along with lifecycle methodologies in their tender documents. These 

92  https://ec.europa.eu/tools/ecertis/#/search.  TED  has  over  4000 unique  visitors  each day;  a  specialised  online  tool  as  eCertis  has  10 000 
unique visitors each month. 

42 

 
 
 
 
 
                                                           
can involve technical specifications, selection criteria, award criteria, contract performance clauses as 
well  as  transparency  requirements  for  the  sub-contracting  chain.  A  variety  of  procedures  allow  for 
different  approaches  for  buying  innovative  solutions,  from  simple  uptake  to  pre-commercial 
procurement, thus facilitating the diffusion of these solutions on the market. 

To  facilitate  the  uptake  of  strategic  procurement,  the  European  Commission  has  developed  a 
number of support tools including guidance on strategic procurement. Some Member States have 
developed  online  repositories  of  verified  strategic  criteria  that  contracting  authorities  can  use. 
Sweden, Austria and Denmark are positive examples in this respect. However, about half of the EU 
procurement procedures apply lowest price as the only criterion for awarding public contracts93. This 
share  largely  varies  from  12 %  in  France  to  more  than  90 %  in  Lithuania,  Greece  and  Malta. 
However, the major gap resides in the degree of professionalisation across different levels of public 
authorities.  

Professionalisation  

Developing and retaining public procurement practitioners remains a key challenge. In order to 
ensure  the  most  efficient  use  of  public  funds,  public  buyers  need  to  be  in  a  position  to  procure 
according  to  the  highest  standards  of  professionalism.  Enhancing  and  supporting  professionalism 
among  public  procurement  practitioners  can  foster  the  impact  of  public  procurement  in  the  whole 
economy94.  The  issue  of  retaining  professional  procurement  practitioners  in  the  public  sector  is  a 
recurrent challenge for many contracting authorities, but relying on a clearly identifiable career path 
could contribute to tackling this problem. 

Efforts for improving the professionalism of contracting authorities are ongoing. The European 
Commission encourages Member States to work in this direction95 and provides them with support96. 
Several  Member  States  have  adopted  professionalisation  strategies  and  targeted  initiatives.  For 
example,  Lithuania  has  notified  the  adoption  of  a  plan  to  strengthen  the  professionalism  of  public 
procurement,  which  includes  an  attestation  system.  Slovenia  has  adopted  an  action  plan  including 
raising competences of civil servants for better procurement, assistance to contracting authorities and 
tenderers  for  increased  legal  certainty,  quality  and  cost-effectiveness  of  public  procurement, 
promotion  of  strategic  procurement,  joint  procurement  and  development  of  smart  tools  to  support 
public  procurement  processes.  Many  other  Member  States  are  also  actively  pursuing 
professionalisation initiatives and action plans. France or Malta have developed clearly identified job 
and career structures and procurement specific competency frameworks, with corresponding training 
programmes.  

Central purchasing bodies proved to be a powerful tool for improving professionalisation. Inter 
alia97  France,  Finland,  Ireland,  Denmark,  Italy,  Austria  or  Portugal,  ensure  professional  purchasing 
through  centralised  purchasing  bodies  (CPBs)  staffed  with  highly  specialised  experts.  Beyond 
fulfilling  their  main  mission  (aggregation  of  public  procurement  and  generate  savings),  CPBs 
themselves act as centres of expertise and training for other contracting authorities within the country 

93 According to 2018 SMS data.   
94 The Staff Working Document (SWD(2015) 202) accompanying the single market strategy estimated the potential economic gains from 
solving problems due to professionalisation to more than EUR 80 billion.  
95 In October 2017, the European Commission adopted Recommendation (EU) 2017/1805 on the professionalisation of public procurement. 
96 The European Commission is providing support for professionalisation through:  central information portal (e-competence centre)  with 
guidance and tools for practitioners in all EU languages, facilitating the exchange of good practices and innovative approaches;  European 
Competency Framework for public buyers, as a common view of the skills and knowledge required by procurement professionals; targeted 
training schemes and peer to peer exchanges with special focus on Central Purchasing Bodies; technical assistance and financial support for 
administrative capacity building and structural reforms. 
97 There are many CPBs operating at national level in the EU in several other Member States. In addition, several CPBs operate in specific 
sectors (e.g. health sector). Those may be organised at national level or at regional level.  

43 

 
 
 
 
                                                           
and  across  Europe  or  even  for  economic  operators  as  in  the  case  of  Consip98  in  Italy,  Hansel  in 
Finland99  or  the  Federal  Procurement  Agency  (BGG)  in  Austria100.  Croatia  has  established  a 
certification scheme, which ensures that every procedure is vetted by a certified buyer.  

Enforcement and remedies 

Despite significant delays, the overall transposition of the new EU public procurement rules is 
almost  complete  with  compliance  checks  on  the  way.  The  efficient  implementation  of  the  EU 
Public  Procurement  Directives  is  indispensable  for  a  fully  functioning  and  well  performing  Single 
Market. The transposition process was delayed on average by two years and compliance checks are 
still ongoing101.  

Every year, public contracts of an approximate total value of EUR 80 billion are challenged in 
front of national review bodies. A well-functioning remedy system at national level is one of the key 
factors for the effectiveness of EU public procurement law across the Single Market. The Remedies 
Directives102  do  not  harmonize  the  remedies  systems  across  Member  States  but  set  the  minimum 
conditions for national review procedures. There are differences, for instance, in the length and costs 
of review.  

The  Commission  seeks  greater  convergence  of  remedies  systems  in  the  Single  Market,  while 
respecting  Member  States’  procedural  autonomy  and  legal  traditions.  The  effectiveness  of 
national  remedies  systems  is  the  responsibility  of  Member  States.  However,  the  European 
Commission facilitates this task by encouraging further exchanges and collaboration among national 
review bodies in the framework of the Network of First Instance Review Bodies103. Network meetings 
cover  various  work  areas,  including  exchanges  of  information  about  national  systems  and  good 
practice, identification of needs and challenges, development of common solutions, and improvement 
of governance through the better use of data and digitalisation.  

Conclusions 

Despite  progress  in  different  areas,  the  performance  of  public  procurement  remains  mixed. 
Transparency  has  been  increased,  especially  since  the  introduction  of  e-procurement.  However, 
competition  has  not  kept  pace  with  this  progress  and  remains  a  challenge.  The  introduction  of 
strategic  procurement  has  allowed  tailoring  procurement  practice  to  meet  specific  national  needs. 
Significant effort to professionalise public procurement practice will be needed in order to improve 
performance at national and regional levels. 

The significance of well-functioning public procurement systems is recognized in the European 
Semester.  By  ensuring  better  value  for  public  money  as  well  as  driving  at  maximum  effectiveness 
and impact of each еuro spent, it shows clearly its relevance for sustainable public finances.  Public 
procurement  is  gaining  further  prominence  with  the  growing  importance  of  investment  in  the 
European Semester, in particular in the context of the European Green Deal. This growing importance 

98 Consip, a publicly owned stock company, acts as the central purchasing body on behalf of the state.  
99  Hansel  Oy  is  a  publicly  owned  non-profit  company  which  operates  as  a central  purchasing  body  for  central  and  local  governments  in 
Finland. 
100 The Federal Procurement Agency (BBG). Although public procurement is carried out at all different levels of government, an important 
share of purchases is centralised by the Federal Procurement Agency (BBG), which plays a central role in the efficiency and harmonisation 
of public procurement procedures as well as in the capacity building of public practitioners at federal, state, and local levels. 
101 Spain is he only Member State that has not completed the transposition process. 
102 Ref Directive. 
103 Since its creation in 2017, the Network of First Instance Review Bodies on Public Procurement has strengthened cooperation between 
national review bodies in the EU.  The network has already met six times, in Brussels, Malta, Sofia, Zagreb and Bucharest. EU countries 
have used these meetings to engage in productive discussions on public procurement. They have also worked together in the organisation of 
meetings  and  the  promotion  of  the  network.  The  European  Commission  in  cooperation  with  the  Network  gathers  data  and  develops 
indicators regarding the functioning of national remedy systems. 

44 

 
 
 
                                                           
resides on public tenders being a powerful instrument to deliver on wider policy objectives, including 
sustainable  development  goals,  while  contributing  to  competitiveness  in  many  sectors.    However, 
there  is  plenty  of  potential  to  exploit  further  digitalisation  and  integration  of  new  technologies  (i.e. 
blockchain) into public procurement practice.  

c. DIGITAL MARKETS 

Digitalisation  is  contributing  to  improving  the  performance  of  the  Single  Market.  The  Digital 
Single Market initiative is Europe’s long-term strategy for digital transformation. So far, the EU has 
agreed  on  28  out  of  30  legislative  proposals,  creating  35  new  digital  rights  and  freedoms.  The 
effective implementation will boost connectivity, the data economy and digital public services, as well 
as help Member States to equip citizens with digital skills adapted to the modern labour market. This 
directly improves the performance of Single Market integration, for example by bringing customers 
and suppliers in different Member States together or by  making cross-border delivery of goods and 
services cheaper and faster. It also boosts productivity of firms and efficiency of value chains. 

The full benefits of the Single Market will however not be felt without an integrated EU-wide 
digital  ecosystem.  In  recent  years,  the  mobile  internet,  online  platforms  and  many  other  digital 
inventions radically changed our lives. Yet, we have already entered  the next major phase of digital 
transformation,  which  is  expected  to  lead  to  a  stronger  integration  of  the  'digital'  and  'traditional' 
economy  thanks  to  the  Internet  of  Things  and  disruptive  technologies  like  Artificial  Intelligence  or 
blockchain.  The  Single  Market  in  the  digital  age  therefore  needs  to  be  underpinned  by  a  robust, 
sustainable, and convergent EU-wide digital ecosystem, i.e. a set of interlinked conditions including 
digital  infrastructure,  skills  and  policies.  Only  such  an  integrated  ecosystem  will  allow  for  a 
competitive supply and an effective uptake of digital technologies across the EU. It will allow firms 
and citizens to capitalise on the Single Market. It is also necessary to ensure Europe`s technological 
leadership  and  strategic  autonomy  in  the  digital  age  in  key  areas,  such  as  cybersecurity,  artificial 
intelligence and 5G.  

Europe’s need for a digital eco-system to underpin the Single Market 

The digital economy is characterised by global value chains and different competitive strengths 
of Europe, the US and Asia. Competition in digital products and services from other regions of the 
world,  in  particular  the  US  and  East  Asia,  is  fierce.  US  companies  at  this  point  have  leadership  in 
software  (and  especially  in  the  business-to-consumer  space)  and  Asian  companies  in  consumer 
electronics  and  enterprise  computing  hardware.  Examples  of  specific  areas  where  EU  firms  are 
competitive include cybersecurity, photonics and industrial robotics.   

The  ongoing  wave  of  digital  transformation  occurs  in  sectors  where  Europe  is  traditionally 
strong,  like  manufacturing,  mobility,  energy,  health,  and  finance.  Established  European 
companies in traditional  industries  have  significantly  increased their acquisitions  of tech  companies 
over the past years (tech acquisitions by the top 50 'corporate cohort' in Europe grew from a single 
acquisition in 2011 to 23 acquisitions in 2015)104. By way of example, one of the largest acquisitions 
in artificial intelligence in 2018, was the acquisition of US-based cancer start-up Flatiron Health, by 
Swiss-based  pharmaceutical  company,  Roche105.  The  full  impact  of  disruptive  technologies,  like 
artificial  intelligence  or  blockchain  is  impossible  to  predict,  but  the  transformation  of  traditional 
industries  is  expected  to  go  well  beyond  increased  operational  efficiency.  These  technologies  are 
expected  to  lead  to  entirely  new  business  models,  revenue  streams  and  value  propositions,  for 
example in personalised medicine or, connected and automated driving.  

104 The State of European tech 2016 edition, by Atomico and Slush 
105 The Race For AI: Here Are The Tech Giants Rushing To Snap Up Artificial Intelligence Start-ups, CBINSIGHTS. 

45 

 
 
                                                           
Europe will also see an increased convergence between 'digital' and 'traditional' products and 
services, notably with the deployment of 5G and the Internet of Things.  The Internet of Things 
(IoT)  is  mostly  developing  around  value  chains  (especially  automotive  and  utilities)  and  is  driven 
primarily  by  industrial  applications  and,  for  the  medium  term  at  least,  in-house  use106.  These 
dynamics will trigger the development of new types of digital business-to-business services. Europe 
has an opportunity to take a leadership role, inter alia due to its strong position on the demand side, 
namely the 'traditional' industries concerned. The data generated by interconnected IoT devices will 
be  the  new  fuel  of  the  economy  across  the  EU,  with  a  myriad  of  potential  uses  from  AI  to 
personalised services, which should be supported by an improved framework for data sharing. 

by 

scale 

Figure 3.11: ICT sector R&D Intensity  

Rapid  growth is  particularly 
important  for  providers  of 
digital products and services. 
Digital  markets  are  often 
strong 
characterised 
economies 
and 
of 
Digital 
effects. 
network 
products and services typically 
involve  a  high  proportion  of 
fixed  costs  (especially  R&D) 
and  relatively  low  marginal 
costs.  Digital  companies  are 
therefore often able to scale up 
rapidly  in  a  short  time  with 
few 
physical 
assets107. The ICT sector has therefore one of the highest R&D intensity. The R&D intensity of EU 
firms (5 %) in the ICT sector, however, is currently lagging behind their counterparts in the US and 
Japan (US, 12 %; Japan, 8 %). Chinese firms also outperform EU firms since 2015 in this regard (see 
figure 3.11)108.  

Source: JRC Predict. R&D intensity is defined as ICT BERD divided by ICT 
value added.  

staff 

and 

The  Single  Market  can  provide  European  companies  with  the  necessary  scale  to  compete 
internationally.  US  and  Chinese  companies  benefit  from  large  homogeneous  markets  and  (for 
different reasons) access to large amounts of data and targeted state policies and investments. Given 
the  right  conditions,  an  innovative  digital  company  anywhere  in  the  EU  could  also  achieve  scale 
thanks to the size of the Single Market. However, none of the ten biggest tech companies is based in 
the  EU.  The  US  also  has  four  times  more  scale-ups  than  Europe.  Scale-ups  in  Europe  are 
predominantly small (76 % are below USD 10 million with only 5 % above USD 50 million). There is 
also a strong geographic divergence when it comes to scaling up: In 2017 almost 70 % of the 1 220 
new scale-ups were located in only four EU countries, namely UK, France, Germany and Sweden (a 
similar  picture  emerges  when  looking  at  the  past  decade)109.  These  facts  raise  the  question  if  tech 
companies  across  the  EU  can  sufficiently  capitalise  on  the  scale  and  opportunities  offered  by  the 
Single  Market  the  same  way  as  their  US  and  Asian  counterparts  capitalised  on  their  home  markets 
before expanding across the globe. 

106 Digiworld Yearbook 2017, Idate 
107  For  example,  a  long-established  telecom  company,  Deutsche  Telekom,  serves  close  to  200  million  customers  worldwide  with  over 
200 000 employees . Instagram on the other hand was serving 30 million subscribers with only 13 employees less than two years after it was 
launched. 
108 Joint Research Centre, 2019 "Prospective Insights in ICT R&D" at https://ec.europa.eu/jrc/en/predict/editions/2017 . 
109 Tech Scaleup Europe 2018, Mind the Bridge for the Start-up Europe Partnership 

46 

 
 
                                                           
 
Significant  divergence  among  Member  States  impedes  Europe  from  achieving  market  scale 
comparable  to  the  US  or  even  China.  Member  States  and  regions  differ  significantly  in  their 
progress  towards  digitalising  their  economies.  The  economically  more  advanced  regions  of  the  EU 
have  benefited  most  from  the  Single  Market.  Overall  GDP  inequality  levels  between  European 
regions have declined by about 25 % in the last twenty years. The integration of digital technologies 
by companies or the development of 'digital' human capital has shown limited signs of convergence in 
the period 2014-2019 (despite some convergence in areas subject to EU regulation like connectivity 
infrastructure  and  digital  public  services).  Front  runners  are  Ireland,  Netherlands,  Belgium  and 
Denmark based on a sample of important digital technologies (see figure 3.12). Taking a wider group 
of  digital  technologies  together,  less  than  a  fifth  of  companies  in  the  EU  can  be  considered  highly 
digitalised,  but the  situation  across countries  is  varied,  ranging  from  50 %  of  companies  in  Finland 
and Denmark to only 10 % in Bulgaria, Greece and Latvia. 

Figure 3.12: Digitalisation of businesses (e-commerce and other digital technologies) 

s
d
e
r
d
n
u
H

80%

70%

60%

50%

40%

30%

20%

10%

0%

Other digital technologies 

eCommerce 

E
I

L
N

E
B

I

K F
D

E
S

K
U

T
L

T
M

S
E

T
P

Z
C

E
D

8
2
U
E

I

R S
F

E
E

U
L

R
H

T
A

Y
C

K
S

L
E

T
I

V
L

U
H

L
P

O
R

G
B

Source: European Commission; DESI 2019 

The  broader  effects  of  the  Single  Market  helps  removing  obstacles  to  (digital)  innovation 
diffusion  between  firms  across  Europe.  This  would  contribute  to  raising  productivity  levels  of 
Europe’s “less-productive”  firms  (or laggard  firms)  and  generating  increases in the returns  of  those 
firms when they access a larger market for their products and/or services. Laggard firms are finding it 
hard to adopt the advanced technologies and business processes of the frontier firms. Knowledge and 
innovation  therefore  do  not  spread  rapidly  enough  across  the  EU.  Europe’s  ability  to  scale  up 
innovations is thus hindered by an incomplete internal market. 

The framework conditions of the EU-wide digital eco-system 

The development of the digital eco-system is hampered by a low performance in many Member 
States on key framework conditions. There are a number of conditions that determine the robustness 
and sustainability of the digital ecosystem. These include digital skills and infrastructure, funding for 
innovation,  the  availability  of  data,  cybersecurity  and  public  services  fit  for  the  digital  age. 
Furthermore, these conditions are interrelated: for example highly skilled labour will migrate to areas 
where  there  are  a  lot  of  tech  companies,  which  in  turn  will  be  to  a  large  extent  determined  by  the 
availability  of  venture  capital  and/or  digital  infrastructure  and  skilled  workforce110.  Member  States 
have  a  significant  role  to  play  in  improving  these  conditions.  Targeted  investment  and  policies  can 
have  a  significant  impact  on  the  performance  of  individual  countries  and  improve  the  overall  EU 
performance in the Digital Single Market.  

110 The start-up hubs receiving most venture capital in Europe are also the biggest destination for migratory tech talent. 

47 

 
 
 
                                                           
 
Differences  between  national  corporate  tax  systems  can  also  lead  to  high  compliance  cost  for 
businesses  that  conduct  their  R&D  cross-border  or  engage  in  transnational  cooperation  on 
R&D  projects,  for  example  through  joint  ventures111.  Adoption  of  the  Common  Consolidated 
Corporate Tax Base proposals,112 which were relaunched by the Commission in 2016 would help to 
reduce these costs for businesses in the Single Market, but progress in Council on these proposals has 
been slow. The Commission is also actively engaging in discussions on the reform of the international 
corporate  tax  system  to  make  it  fit  for  the  digital  age  in  order  to  ensure  a  level  playing  field  and 
provide certainty for businesses. 

Funding needs of digital ventures 

The revenues of digital companies do not necessarily correlate with their scale. Digital business 
models  often  focus  on  the  longer  term  development  of  markets  rather  than  shorter-term  profit 
considerations.  For  example,  when  Facebook  bought  WhatsApp  for  USD  19  billion,  WhatsApp 
already had a billion users and yet no revenue. The returns are particularly uncertain on investments 
into nascent, fundamental and disruptive technologies, especially when there is a significant time lag 
between investment and wide scale deployment. This is reflected in the amount of equity investment 
available.  In  2018  global  start-up  funding  for  quantum  computing  was  very  low  even  compared  to 
other  emerging  technologies,  like  blockchain  (430  times  more  funding)  and  Artificial  Intelligence 
(over 100 times more funding)  113. However, investments into these technologies are critical for the 
long-term  health  of  the  EU`s  digital  economy  and  society.  Neither  the  private  sector,  the  EU,  nor 
individual  Member  States  can  create  on  their  own  the  ecosystem  necessary  to  trigger  these 
investments.    

The start-up funding gap with the US remains significant and there is a large divergence among 
Member  States.  The  US  has  four  times  more  scale-ups  than  Europe  with  8  times  more  capital 
raised114.  Europe’s  underperformance  is  exacerbated  by  a  large  divergence  among  Member  States. 
The United Kingdom, Germany and France together account for 61 % of the total amount of start-up 
funding. There is a substantial difference across countries when looking at funding per capita: the top 
three Member States (Sweden, Estonia, UK) are above EUR 200/capita each while the bottom half of 
Member  States  are  all  below  EUR  10/capita115.  This  leads  to  a  fragmented  Single  Market  where 
venture capital flows are uneven, which can further amplify imbalances in other areas (e.g. skills). An 
efficient  Single  Market  needs  an  efficient  funding  ecosystem  for  digitalisation,  combining  both 
private and public resources, as well as EU and national funding116. 

Europe’s ambition in high performance and quantum computing 

The EuroHPC Joint Undertaking, set up in September 2018, has the ambition to turn Europe into 
one  of  the  top  three  supercomputing  powers  in  the  world.  Uses  of  high  performance  computing 
include  AI,  Quantum,  5G,  IoT,  blockchain.  All  Member  States (except  UK and  Malta)  plus three 
associated countries (Norway, Switzerland and Turkey) and private partners are currently members. 
As  regards  quantum  technologies,  10  Member  States  have  so  far  joined  the  European  Quantum 

blockchain: 

111 SWD(2016) 341 final 
112 COM(2016) 685 final and COM(2016) 683 final 
113  Source:  Statista,  For  quantum  computing:  https://www.statista.com/statistics/950790/quantum-computing-equity-funding-worldwide/   
For 
AI: 
https://www.statista.com/statistics/621207/worldwide-blockchain-startup-financing-history/ 
https://www.statista.com/statistics/943151/ai-funding-worldwide-by-quarter/  
114 Tech Scaleup Europe 2018 “Mind the bridge” 
115 Next Station Europe: How Europe`s tech startup ecosystems are evolving  
116 Historically, the development of the tech industry in the US for example greatly benefited from crucial public investments (by DARPA) 
into the development of emerging technologies and high-end computer systems 

For 

48 

 
 
 
                                                           
 
Communication  Infrastructure  Declaration  of  June  2019  proposed  by  the  European  Commission 
(Belgium, Germany, Italy, Luxembourg, Malta, the Netherlands, Spain, Hungary, Portugal, Poland, 
Croatia,  Cyprus,  Greece,  France,  Lithuania,  Slovakia,  Slovenia,  Sweden,  and  Finland).  The 
inclusion  of  quantum  cryptography  into  critical  communication  systems  is,  for  example,  key  to 
provide  ultrafast  and  precise  sensing  for  medical  applications  or  for  navigation,  and  to  deploy 
services such as protection of financial services and clock synchronisation. 

Telecommunication markets and digital infrastructure 

Competitive  telecommunication  markets  provide  crucial  services  to  European  citizens  and 
firms.  These  markets  were  historically  characterised  by  state-owned  monopolies  and  underwent  a 
liberalisation process. Under current EU telecoms rules, operators with significant market power are 
subject  to  regulatory  obligations,  such  as  obligations  to  provide  wholesale  access  services  to 
alternative  operators.  Competition  rules  complement  regulation  where  necessary,  to  tackle  ex-post 
actual anticompetitive practices from telecom operators. These range from abusive practices such as 
margin squeezes or predatory pricing to anti-competitive agreements that prevent market integration 
or reduce operators´ incentives to invest in their networks and to improve their services. Competition 
rules have proved successful in fostering competitive markets, encouraging investment and increasing 
consumer choice. However, there may be areas where there is no incentive for commercial operators 
to provide sufficient broadband coverage (market failure). In such cases, EU State aid rules allow for 
public investments where it brings a significant improvement (the so-called step change). They thus 
contribute to a more effective use of public resources and preserve incentives for private investments 
by offering appropriate levels of protection from public intervention. 

Despite substantial progress, gaps in the coverage and take-up of digital infrastructure persist. 
Gaps are particularly prevalent for very high capacity broadband networks, notably networks based on 
fibre. While fixed and mobile broadband coverage is converging across EU Member States, ultrafast 
broadband  coverage (i.e. with  at  least  100 Mbps  download  speed)  is still  uneven.  In  2018, 60 %  of 
households have access to at least one of the ultrafast technologies, up from 57 % a year ago117.  In 
Malta, the Netherlands, Belgium, Denmark and Luxembourg at least 90 % of households have access, 
while in Greece it is less than 1 %. In contrast, rural coverage of ultrafast technologies stands at 16 % 
of  households.  In  terms  of  uptake,  20 %  of  European  households  currently  subscribe  to  ultrafast 
broadband, a strong improvement from 2 % 6 years ago. Penetration is highest in Sweden, Portugal, 
Romania  and  Hungary,  with  over  40 %  of  households  subscribing  to  at  least  100  Mbps.  In  Greece, 
Cyprus and Croatia take-up is very low. 

Mutually  consistent  spectrum  management  approaches  by  Member  States  are  essential  to 
support  5G  investment.  The  deployment  of  5G  will  provide  citizens  and  industry  with  wireless 
broadband services at gigabit speeds and will support new types of applications and business models. 
Only twelve Member States have assigned spectrum ready for 5G use by the end of 2020 within the 
so called 5G pioneer bands identified in Europe, resulting in an EU-average of only 14.2 % (Figure 
3.13)118.  So  far,  ten  Member  States119  have  published  national  5G  roadmaps:  Austria,  Estonia, 

117 Digital Economy and Society Index 2019.  
118 Idem.  
119 Situation as of April 2019.  

49 

 
 
 
                                                           
Finland,  France,  Germany,  Luxembourg,  Netherlands,  Spain,  Sweden  and  UK.  EU  regulation  and 
policy action related to connectivity has helped to reduce divergences across Member States120.  

Figure 3.13: 5G readiness of Member States 

70%

60%

50%

40%

30%

20%

10%

0%

of 

development 

Europe’s  industrial  strength  requires 
5G-based 
the 
ecosystems.  Industries  such  as  energy, 
transport,  health,  manufacturing  and 
finance,  where  Europe  has  traditionally 
been  a  leader,  are  key  to  develop  new 
convergent  solutions.  These  solutions, 
such as connected and automated driving 
facto,  a 
systems,  will 
convergence  of  products  and  services 
with a large share of digital components. 
data 
Key 
processing  and  5G  networks  will  spread 
across all sectors of the EU economy. 

technologies 

imply,  de 

based 

on 

Digital skills as a bottleneck 

Source:  European Commission 
Note:  Assigned  spectrum  as  a  %  of  total  harmonised  5G 
spectrum. Member states not mentioned are at 0 %.  Figures as of 
April 2019 published in DESI 2019 

Europe  has  a  systemic  digital  skills 
gap,  with 
some  Member  States 
particularly  lagging  behind.  Around 
90 % of today’s jobs require at least basic 
digital  skills.  Yet,  43 %  of  the  citizens 
and  35 %  of  the  labour  force  lack  these 
essential skills. There is also an increasing demand across the economy for staff with advanced digital 
skills.  Although  employment  of  ICT  specialists  grew by  two  million  over  the  last  5  years,  53 %  of 
companies  have  difficulties  in  recruiting  ICT  specialists.  Vacancies  for  ICT  specialists  in  the  EU 
exceed one million121. Furthermore, there is not enough capacity available to train experts in newly 
expanding  areas  like  artificial  intelligence,  cybersecurity,  and  high-performance  computing. 
Differences between Member States as regards the digital skills of their workforce are substantial122. 
While Finland, Sweden, Luxembourg and Estonia are the leaders in this area, large economies such as 
France,  Spain,  Poland  and  Italy  are  below  the  EU  average  and  are  not  improving  at  the  pace 
technological  change  requires.  In  fact,  the  shortage  of  digital  skills  hinders  the  diffusion  of 
innovations. 

120 Assessment of the 5-year evolution of DESI 2014-2019 showed a decrease in the delta between the frontrunner and the laggard Member 
States.  
121 Estimation based on European Commission’s VICTORY project, 2019  
122 Digital Economy and Society Index, 2019 

50 

 
 
 
 
 
 
 
                                                           
 
Case study: Artificial intelligence 

Artificial intelligence is an economic game changer with consequences across Member States. AI 
could add up to EUR 13.3 trillion to global GDP by 2030123. If Europe were to catch up with the US 
AI frontier, a total of EUR 3.6 trillion could be added to collective GDP in this period124. Frontrunners 
in AI adoption (whether countries or companies) will derive substantially more economic benefit than 
those falling behind125. 

The Single Market offers Europe a chance to be world leading in artificial intelligence. The EU 
is  home  to  around  a  third  of  top  100  ranked  research  organisations,126  similar  to  the  US  and  well 
ahead of the next ranked country, China. Europe is in a world-leading position in robotics, and has a 
strong  business-to-business  sector,  strong  industrial  and  services  sectors,  and  significant  industrial 
data. Private investments in AI however still lag well behind the rest of the world. Some EUR 2.4-3.2 
billion was invested in AI in Europe in 2016, compared to EUR 12.1-18.6 billion in North America 
and EUR 6.5-9.7 billion in Asia127. 

Gaps among Member States as regards the enablers of AI risk holding back the EU as a whole. 
Connectivity, skills, funding, the availability of adequate data and the general capacity of companies 
to  absorb  digital  technologies  are  important  enablers  for  AI.  Only  12 %  of  European  companies 
employing more than 10 people used big data analytics in their activities and only 18 % used cloud 
computing.  As  regards  government  preparedness for AI,  9  EU  Member  States  are  in  the  global top 
20128. High-skilled technical experts in areas such as AI, data analytics and cybersecurity are among 
the most in-demand workers. Job vacancies for these profiles however often go unfilled  – there are 
already over 1 million vacancies for ICT specialists in the EU129. Tertiary courses in AI are lacking in 
most Member States. The majority of such courses are offered in the UK (45 %), distantly followed 
by Germany (7 %), the Netherlands (7 %), France (6 %) and Spain (5 %). Skills shortages in artificial 
intelligence are also said to be at least partly the rationale for the many acquisitions of AI start-ups by 
large tech companies130. 

Member States have thus a critical role to play to provide the conditions necessary for a vibrant 
AI ecosystem. Capitalising on the Single Market will require EU-level actions specific to AI such as 
adopting  ethical  and  liability  rules.  Member  States  however  also  have  a  critical  role  to  play,  as 
recognised by the EU and Member States in the jointly prepared coordinated plan on AI of December 
2018131. In fact, one of the most promising areas of AI adoption will be healthcare, which has a strong 
national dimension, including as regards the relevant data. Secure access to large-scale, high quality, 
standardised health data is crucial for the development of new and innovative healthcare solutions, for 
example  using  AI  or  high-performance  computing  to  develop  virtual  models  or  more  tailored 
treatments.  

123 Notes from the AI Frontier, McKinsey Global Institute, September 2018.  
https://assets.mckinsey.com/featured-insights/artificial-intelligence/notes-from-the-ai-frontier-modeling-the-impact-of-ai-on-the-world-
economy 
124 Tackling Europe's Gap in Digital and AI, McKinsey Global Institute, February 2019 
125 McKinsey: Notes from the AI Frontier: Tackling Europe's Gap in Digital and AI, September 2018. 
126 The State of European Tech 2017, Slush/Atomico:  
127 Communication Artificial Intelligence Europe, 2018 
128 https://www.oxfordinsights.com/ai-readiness2019 
129 Estimation based on European Commission’s VICTORY project, 2019  
130 While the EU produces roughly 25 % of AI startups (McKinsey: Notes from the AI Frontier: Tackling Europe's Gap in Digital and AI, 
September 2018), these are typically acquired (as are AI startups in other parts of the world). Some analysts report over 600 AI acquisitions 
between 2010 and 2019 (The Race For AI: Here Are The Tech Giants Rushing To Snap Up Artificial Intelligence Startups, CBINSIGHTS). 
131 Communication Coordinated Plan on Artificial Intelligence (COM(2018) 795 final) 

51 

 
 
 
 
                                                           
Data as an unexploited resource 

The  value  of  the  EU  'data  market'  could  grow  from  EUR 71 billion  in  2018  to  over 
EUR 141 billion by 2025. The data market is the marketplace where digital data is exchanged in the 
form of innovative products or services. At Member State level the size of the data market shows a 
tight  correlation  with  the  national  spending  on  ICT  as  well  as  the  overall  economic  strength  of  the 
specific  Member  State.  In  2018,  six  Member  States  (UK,  France,  Germany,  Italy,  Spain,  and  the 
Netherlands)  accounted  for  approximately  three  quarters  of  the  whole  EU  data market,  indicating  a 
relatively high concentration among Member States132.  

So far,  European firms  are  not exploiting  the full potential  of  data. The  efficient  use  of  data is 
critical for both the supply and uptake of digital technologies. Having access to sufficient and good 
quality  data  is,  for  example,  essential  for  training  AI  applications,  as  demonstrated  by  online 
platforms. While 70 % of companies re-using data consider that accessing data from other companies 
is very important to their business, 60 % of all EU companies currently do not share data with other 
companies  and  58 %  of  companies  are  not  re-using  data  from  other  companies133.  This  limited 
willingness to share data among firms, combined with unevenly spread digital skills across industries, 
holds  back  a  broader  data  usage.  Only  12 %  of  EU  companies  currently  make  use  of  big  data. 
Comparison  between Member  States  also shows  a difference of  roughly  20  percentage  points,  with 
24 % of Maltese companies using big data compared to only 5 % of Cypriot companies. Although the 
use  of  big  data  has  improved  and  the  difference  between  leaders  and  laggards  has  slightly  shrunk, 
there is still significant room for improvement.  

Ensuring  that  data  is  sufficiently  available  and  mobile  within  the  Single  Market,  while 
protecting security and privacy, is a complex and specific challenge. Private-sector data is a key 
driver of innovation and competitiveness in Europe and the re-use of private sector data constitutes a 
further  cornerstone  of  a  common  European  data  space.  For  example,  data  is  often  created  in  an 
automated way by machines or processes based on digital technologies, such as the Internet of Things. 
To extract maximum value from these and other types of private sector data, market players may need 
to  be  able  to  access  and  use  such  data,  also  across  borders134.  On  the  other  hand,  to  unlock  the 
potential value from the wider use of data, high privacy, security, safety and ethical standards need to 
be  maintained.  The  risk  of  some  large  companies  restraining  market  entry  and/or  foreclosing 
competitors is also a concern, which is inter alia linked to the massive data accumulation from which 
these firms benefit. Questions on further data sharing arise notably in sectors such as transport (e.g. 
access  to  car  data),  financial  services,  health  care  and  energy.  With  the  General  Data  Protection 
Regulation,  the  EU  has  already  created  a  solid  framework  for  digital  trust,  a  precondition  for  the 
access and use of data. Finally, cybersecurity is typically an area where any weak link in the chain can 
be  exploited  with  potentially  devastating  consequences  for  the  entire  chain.  Building  up  resilience 
across  the  entire  EU  is  thus  essential  to  prevent  security  breaches  having  spill  over  effects  across 
national borders. 

The role of national administrations 

Modernisation  and  digitalisation  of  public  services  can  lead  to  efficiency  gains  for  the  public 
administration,  citizens  and  businesses  alike.  Interoperable  digital  administrative  systems  can 
greatly contribute to a borderless Single Market, speeding up procedures and lowering cost, e.g. for 

132 European Data Market Monitoring Tool, SMART 2016/0063, IDC 2019, www.datalandscape.eu.  
133 Study on data sharing between companies in Europe, European Commission, 2018 
134 Communication "Towards a common European data space"  25.4.2018  COM(2018) 232 final 

52 

 
 
 
                                                           
service  providers  to  fulfil  their  legal  obligations  when  providing  services  cross-border.  Last  year, 
64 % of the EU citizens who needed to submit forms to a public authority did so online. However, the 
situation differs between Member States. Denmark is the top performer, followed by Estonia, Finland 
and the Netherlands. Big EU economies such as Germany and Italy lag behind with only 40 % of their 
citizens using  e-services.  In  those  digital public  services  where  EU regulation is  in place, there  is a 
convergence  trend  among  Member  States  for  the  period  2014-2019.  Finland  has  the  highest  score, 
followed  by  Estonia,  the  Netherlands  and  Spain.  Romania,  Greece  and  Hungary  have  the  lowest 
scores. The demand side of digital public services is progressing and 24 countries performed better in 
2018 than in 2017, with Portugal and Czechia making the biggest improvement.  

Member States also hold lots of data that could be useful for companies and for research, and 
that  can  be  made  available  in  open  data  format.  Open  access  to  public  data  is  an  effective 
instrument  to  promote  the  data  economy.  There  are  substantial  differences  in  the  degree  to  which 
Member States make their data accessible. While Ireland is the leader in Open Data in Europe with 88 
points  (out  of  a  maximum  score  100),  Malta  is  only  awarded  18  points.  The  EU  average  is  64 
points135.  

Conclusions 

Digitalisation is progressing in the Single Market but efforts are needed to develop further the 
integrated EU-wide digital ecosystem that should allow to release in full all the benefits for firms 
and  citizens.  The  Digital  Single  Market  allowed  significant  progress  in  digitalising  Europe's 
economy.  Ensuring  Europe’s  technological leadership  and  strategic autonomy  now  requires  that  we 
create  a  robust,  sustainable  and  convergent  EU-wide  digital  ecosystem,  on  par  with  our  North 
American and Asian trading partners. The development of this ecosystem is currently held back by an 
insufficient and uneven performance on key digitalisation drivers, such as digital infrastructure, skills 
and funding for digital ventures. The framework for the data economy and reinforced cyber-security 
are further pillars. Member States have a crucial role to play in putting these elements into place and 
the  European  Semester  allows  for  a  more  coordinated  approach  to  national  efforts.  Furthermore, 
policies  addressing  skill  mismatches  and  an  increased  supply  of  appropriate  skills  could  alleviate 
obstacles to broader diffusion of digital technologies. 

d. CAPITAL MARKETS 

A  well-functioning  Single  Market  requires  integrated  and  developed  capital  markets.  They 
channel savings to investments and allow us to price and manage risks. Integrated capital markets are 
a driver of economic success that contribute to growth, encourage innovation and increase prosperity. 
They  expand  the  financing  options  for  firms  and  broaden  investment  opportunities  for  savers.  The 
Single  Market  for  capital  also  helps  households  and  firms  diversify  risks  and  allocate  resources 
efficiently.  It  underpins  convergence,  strengthens  economic  resilience  and  supports  the  Union’s 
financial sovereignty. More integrated capital markets can also promote the transformation towards a 
digital and sustainable economy by re-orienting flows towards those activities that drive these societal 
changes.  

Restoring financial stability and integration 

EU  financial  services  legislation  has  made  major  contributions  to  spur  integration  over  time. 
Financial integration increased steadily until 2007 (see figure 3.14). The financial crisis set back the 

135  DESI Report 2019, “Trends in European Digital Public Services in the EU 2019”. 

53 

 
 
 
                                                           
  
integration  process.  The  measures  taken  to  strengthen  the  Economic  and  Monetary  Union  and  the 
post-crisis  reform  package  that  set  in  motion  the  process  of  forming  a  Banking  Union  (BU)136  and 
Capital Market Union (CMU)137 as response to the crisis have paid off. Integration picked up again in 
the  post-crisis  period  but  more  strongly  with  respect  to  prices  than  with  respect  to  quantities  (see 
figure 3.14)138.  

These  reforms  have  resulted  in  a  more  stable  financial  system  and  helped  restoring  market 
confidence.  EU  banks  are  now  more  resilient  thanks  to  continued  deleveraging,  de-risking  and 
significant reductions of non-performing loans. The ongoing CMU reforms on the other hand would 
facilitate private risk sharing and further contribute to economic recovery. It would also enhance the 
capacity to support investment when credit channels via banks are under stress.   

Figure 3.14: Euro-area price-based and quantity-based financial integration 

1,0

0,8

0,6

0,4

0,2

0,0

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Price-based Indicator

Quantity-based indicator

Source: ECB financial integration indicators. Quarterly data 
Note: The price-based composite indicator aggregates ten indicators while the quantity-based composite indicator aggregates 
five indicators. These indicators are each between zero (full fragmentation) and one (full integration). Therefore, increases in 
the  indicators  signal  greater  financial  integration.  they  include  components  such  as  cross-border  transactions  or  country 
diversification of asset portfolios or interest rate dispersion.. For details see ECB (2006) “Indicators of Financial Integration 
in the Euro Area,” September.  

Although the financial system is now more stable and resilient, continued efforts are required in 
order to promote further integration and to face remaining pockets of risks and challenges. For 
instance, capital markets are still less integrated than before the crisis. In addition, home bias in EU 
equity  and  debt  portfolio  holdings  remain  high,  with  domestic  holdings  representing  68 %  of  total 
holdings in 2017 (see figure 3.15). The downward trend in home bias before the financial crisis can be 
attributed to an increasing share of intra-EU portfolio investment in the years that followed the start of 
monetary union. In recent years, however, the share of portfolio investment in extra-EU countries has 
grown while intra-EU holdings have stagnated (nevertheless intra-EU holdings remain a much higher 
share)139.  Low  cross-border  capital  market  integration  also  implies that  similar  firms  within  the  EU 
cannot  fund  themselves  on  the  same  terms.  More  generally,  access-to-finance  problems  can  hinder 

136 See  European Commission, ‘Third progress report on the reduction of non-performing loans (NPLs) and further risk reduction in the 
Banking Union’, 28 November 2018 and https://ec.europa.eu/info/business-economy-euro/banking-and-finance/banking-union_en. 
137  See  European  Commission,  ‘Capital  Markets  Union:  progress  on  building  a  Single  Market  for  capital  for  a  strong  Economic  and 
Monetary Union’, 15 March 2019 and https://ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union_en. 
138 See Hoffmann, P., Kremer, M. and Zaharia, S., ‘Financial  Integration in Europe  Through the  Lens of Composite  Indicators’, April 2, 
2019. The drop in integration and subsequent recovery was most pronounced for aggregate price-based integration. 
139 For further details, see, European Commission, ‘European Financial Stability and Integration Report (EFSIR)’, 2019. 

54 

 
 
 
 
                                                           
firm growth, by limiting investments, productivity improvements and export opportunities, especially 
for young and innovative firms140 141. 

Figure 3.15: Home bias in equity and debt portfolios 

80%

75%

70%

65%

22%

17%

12%

7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Share of domestic holdings - Home bias (lhs)
Share of extra-EU holdings (rhs)

Share of intra-EU holdings (rhs)

Source: European Commission 

Deepening  the  CMU  is  crucial  to  advance  the  Single  Market  for  capital.  Delivering  the  key 
building  blocks  of  the  CMU  promptly  is  important,  for  instance  in  view  of  the  UK’s  decision  to 
withdraw  from  the  EU.  The  CMU  nevertheless  remains  mainly  a  structural  reform  that  requires  a 
progressive  approach.  This  way,  the  CMU  will  help  channelling  capital  resources  into  their  most 
productive use. 

Improving access to finance and efficiency in the allocation of capital 

Fragmented capital markets lead to higher execution costs and decreased market depth in the 
EU compared to other global financial markets, like the United States and Japan. Fragmentation 
also reduces the scope for economies of scale  and raises the cost for market participants. While the 
EU  accounts  for  roughly  21 %142  of  global  capital  market  activity,  ranking  second  after  the  United 
States, the depth of its capital markets is only half of that in the United States and below that of Asia 
Pacific. This situation reduces the ability of capital markets to contribute to the sustainable growth, 
stability  and  equity  objectives.  Figure  3.16  shows  that  public  equity  and  debt  markets  in  the  EU 
remain smaller relative to GDP compared to other regions such as Japan, the UK and the US. 

140 Wilson K.E., ‘Policy Lesson from Financing Innovative Firms’, 2015, OECD.   
141  The  Commission’s  CCCTB  proposal  includes  a  proposal  for  an  Allowance  for  Growth  and  Investment  (AGI),  which  would  help  to 
reduce the cost of capital and address the debt-equity bias in corporate taxation. 
142 Measured as % of share of activity in capital markets on a sample of 60 economies. See William Wright, Panagiotis Asimakopoulos & 
Eivind Friis Hamre, ‘The New Financial global capital markets growth index’, New Financial, January 2019 

55 

 
 
 
 
                                                           
Figure 3.16 Size of capital markets in selected regions (amounts outstanding at Q3-2018 
as % GDP) 

350%

300%

250%

200%

150%

100%

50%

0%

82% 

68% 

EA

86% 

73% 

66% 

120% 

103% 

116% 

98% 

202% 

EU-28

Japan*

UK

US

Equity Market

Bond Market

Source: ECMI, ECB, Federal Reserve and European Commission own calculations 
Note: Stock market capitalisation and bonds issued by financial and non-financial corporations.   
*As of end of 2017 

The  number  of initial  public offerings (IPOs)  in the  EU  remains  suboptimal  due to  persistent 
market fragmentation, limited liquidity of primary and secondary markets and associated costs 
of  issuance.  As  shown  in figure  3.17,  although  IPOs  picked  up  somewhat  in  2012-2017,  they  then 
declined considerably in 2018. The access of small and medium sized enterprises (SMEs) to public 
equity markets remains even more constrained due to the SMEs size, their sensitivity to costs, lack of 
ratings and accessible research. 

Figure 3.17: Equity issuance on European exchanges (2000-2019; EUR bn) 

Follow-ons
IPOs
Convertible securities

400

350

300

250

200

150

100

50

0

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

Source: Dealogic 
Note:  Issuance  by  entities  domiciled  in  the  EU-28,  all  sectors  included.  The  date  of  reference  is  the  filing  date. 
Figures for 2019 up to September 

Easier access to market-based funding would help companies to complement existing sources of 
bank  financing,  resulting  in  a  more  efficient  allocation  of  resources.  Especially  innovative  and 
high-growth SMEs need to have easy access to adequate funding at all their stages of development 
given  their  contribution  to  economic  growth  and  job  creation.  As  it  often  relies  on  intangible 
investments  with unpredictable cash  flows, it can be difficult  for  a  company  to rely  solely  on  bank 
lending  to  fund  its  research  and  other  projects.  This  is  especially  true  for  SMEs,  which  often  lack 
collateral.  In  most  Member  States,  EU  non-financial  corporations,  and  especially  SMEs,  make  less 
use  of  market  funding  (see  figure  3.17).  In  particular,  the  Central,  Eastern,  and  South-Eastern 
European (CESEE) Member States143 are lagging behind144. In contrast, Nordic and Baltic countries 

143 Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Romania, Lithuania, Poland, Slovakia and Slovenia. 

56 

 
 
 
 
 
                                                           
like  Denmark,  Finland,  Lithuania,  Latvia,  and  Sweden  score  high  on  rankings  assessing  the 
availability  of  market  funding  to  SMEs.  Alternative  sources  of  finance,  including  crowdfunding, 
venture capital,  private  equity  and public equity,  should therefore be  available to  complement  bank 
financing and help companies diversify their funding. 

SMEs  prefer  to  list  on  SME  growth  markets145  because  regulatory  compliance  costs  on  these 
markets are lower than on large stock exchanges. However, even on these platforms the number of 
listings  declined  considerably  post-crisis,  only  slightly  picking  up  in  2017.  SME  IPOs  also  became 
smaller. While SMEs raised about EUR 13.8 billion in 2006-2007 (annual average), they raised only 
EUR 3.9 billion in 2018.  

Figure  3.18:  Total  value  and  number  of  IPOs  on  European  junior  markets  (EUR  bn)  and 
number of IPOs 

30

25

20

15

10

5

0

Total value of IPOs (LHS)

Number of IPOs (RHS)

700

600

500

400

300

200

100

0

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

Source: Dealogic 
Note:  Issuance  by  entities  domiciled  in  the  EU-28,  all  sectors  included.  The  date  of  reference  is  the  filing  date. 
Figures for 2019 up to September 

Listing  costs  remain  one of  the  main factors  that prevent  companies from going  public.  For  a 
small  cap,  this  cost  can  vary  between  6 %  and  15 %  of  the  total  issuance  (for  a  EUR  100  million 
offering),  while  it  can  amount  to  approximately  3 %  for  a  large  cap146.  In  addition,  a  low  level  of 
available  SME  research,  low  secondary  market  activity  (low  liquidity  of  SME  shares)  and  low 
institutional investor participation contribute to a declining trend in SME IPOs. Currently, the main 
investors in SME equity are retail investors, while the main institutional investors – such as insurance 
companies and pension funds  – are largely underinvesting in  SMEs (see Figure 3.20). For instance, 
institutional  investors  account  for  10 %,  11 %,  19 %,  25 %  and  30 %  of  investors  on  the  French, 
Spanish, Swedish, Polish and Belgian SME-dedicated Multilateral Trading Facilities respectively147. 
Such  figures  should  be  compared  with  institutional  investors’  average  participations  on  the 
corresponding regulated markets, which vary between 55 % and 90 %. 

Notwithstanding  the  efforts  made  since  the  publication  of  the  CMU  Action  Plan  in  2015,148 
SMEs  face  other  difficulties  to  access  to  public  markets.  These  include  the  difficulty  to  attract 
enough (institutional) investors, insufficient data on SMEs, visibility and comparability of SMEs for 

144 For further details, see European Commission, ’European Stability and Financial Integration Review’, 2018, pp. 44-61. 
145 SME growth markets are a type of multilateral trading facility or MTF 
146 Company with a market cap of EUR 1 billion or above. 
147 Own calculations based on data received from securities exchanges; Ecorys Study 2013. 
148 Since the publication of the CMU Action Plan in 2015, some targeted actions have been taken to develop adequate sources of funding for 
SMEs through all stages of development. For example, the Commission has promoted a  comprehensive package of measures to scale up 
Venture Capital (VC) financing in Europe, including the creation of a VC fund-of-funds supported by the EU Budget and the review of  the 
Regulation on European Venture Capital and European Social Entrepreneurship funds. Most recently, the Commission proposed new rules 
to reduce the administrative burden and compliance costs for SMEs seeking a listing on SME growth markets. 

57 

 
 
 
 
                                                                                                                                                                                     
institutional  investors,  low  secondary  market  liquidity  in  SME  equity,  SMEs’  limited  knowledge 
about equity finance and high costs of issuing equity.  

New technologies can facilitate access to capital markets and are bound to increase the overall 
efficiency  of  the  European  financial  system.  In  particular,  new  platforms  are  leading  a  trend 
towards increased disintermediation and offer or open up new financing channels for companies. In 
the area of SME financing, this applies in particular to crowdfunding and invoice and debt factoring 
platforms  which  will  help  start-ups  and  young  companies  to  expand  their  business  more  rapidly. 
Likewise, new entrant FinTech companies have gained a considerable market presence in the area of 
payment services, with new offerings improving on both quality and cost. Competition enforcement 
will  have  to  ensure  that  incumbents,  digital  platforms  and  entrants  compete  on  the  merits.  Other 
technologies,  in  particular  the  application  of  distributed  ledger  technologies  (DLT),  artificial 
intelligence  and  big  data  analytics,  hold  further  potential  to  transform  major  components  of  the 
classical financial services markets. Many of these technologies are still at a relatively early stage of 
development. Existing pilot projects however have demonstrated that they can enable efficiency and 
quality gains once they mature to a market-ready state.  

Figure 3.19: Equity liabilities of non-financial 
corporations  in  the  EU-28  and  the  US, 
breakdown by type of equity (EUR bn) 

Figure  3.20  Investments  in  equity  of  insurance 
and pension funds (end 2016; EUR m) 

Listed shares

Unlisted shares

Other equity

40000

35000

30000

25000

20000

15000

10000

5000

0

S
U

8
2
-
U
E

8
2
-
U
E

S
U

8
2
-
U
E

S
U

8
2
-
U
E

S
U

8
2
-
U
E

S
U

8
2
-
U
E

S
U

8
2
-
U
E

S
U

8
2
-
U
E

S
U

S
U

8
2
-
U
E

2009 2010 2011 2012 2013 2014 2015 2016 2017

6000000

5000000

4000000

3000000

2000000

1000000

0

EU28

US

Listed shares

Unlisted shares and other equity

Source: European Commission 

Source: European Commission 

Conclusions 

EU financial services legislation sought to facilitate the integration of capital markets over the 
past 25 years, despite a substantial setback resulting from the financial crisis. Supported by the 
principles of free movement of capital and payments and the freedom of establishment and provision 
of services, EU financial legislation has progressed from communality of rules to a single Rulebook 
approach in an increased number of areas. This has fostered cross-border competition benefitting end-
users, notably consumers and firms, and increasing the overall efficiency of allocation of capital in the 
economy.  

Despite  significant  progress,  cross-border  competition  and  market  penetration  levels  still 
remain  relatively  low.  The  CMU  offers  the  potential  to  reach  deeper  capital  market  integration 
across  the  EU.  Delivering  the  key  building  blocks  of  CMU  promptly  is  critically  important  also  in 
light  of  the  fact  that  the  largest  financial  centre  is  about  to  leave  the  Single  Market.  Beyond  this 

58 

 
 
 
 
immediate priority, the EU needs to equip its economy with a deep and integrated capital market that 
strengthens  the  Economic  and  Monetary  Union  (EMU)  and  the  international  role  of  the  Euro  as  a 
global currency. The EU Semester would support the implementation of the CMU key building blocks 
at Member State level. 

CONCLUSIONS 

The good performance of the Single Market is a shared responsibility at EU and Member State 
level.  These  findings  make  apparent  the  importance  of  reforms  at  national  level  to  enhance  and 
optimise  the  performance  of  the  Single  Market.  The  flow  of  benefits  from  the  Single  Market  to 
businesses  and  citizens  is  limited  by  competition  conditions,  regulatory  restrictions  and  market 
behaviour. Structural reforms discussed and recommended in the European Semester have an impact 
on those factors hindering the performance of the Single Market. 

This report has made apparent the need to identify elements affecting competition conditions, 
business environment and other structural and behavioural factors hindering the performance of 
the  Single  Market  and  requiring  attention  in  the  context  of  the  Semester.  While  new  and  better 
indicators  are  needed  to  better  assess  the  importance  and  the  suitable  reforms  required,  the  main 
conclusions of the report are the following: 

  Goods markets present a high level of integration.  Intra-EU trade is still growing driven by 
the  impulse  provided  by  the  integration  of  Central  and  Eastern  European  Member  States. 
However, evidence shows that inadequate compliance with Single Market rules and insufficient 
market  supervision  limit  the  benefits  of integration in  terms  of trade, competition,  productivity 
growth and product safety. 

 

 

 

Services markets present the highest potential for further integration. The cross-border trade 
in services markets is lower than that of goods but it is growing. In fact, integration in services is 
greater  than trade  figures  suggest  because the  value-added  contents  of  services  included  in the 
intra-EU  trade  of  manufactured  products  is  increasing.  In  addition,  integration  is  increasing 
thanks to the cross-border establishment of subsidiaries. However, the performance of the Single 
Market  in  services  is  hampered  by  weak  competition  and  unjustified  or  disproportionate 
regulatory restrictions, particularly in some business services, retail and construction. 

In some sectors, weak competition prevents consumers and businesses from reaping the full 
benefits of the Single Market. Increasing market power and concentration are frustrating a part 
of  the  price  reductions  that  integration  should  deliver  to  consumers  and  reducing  businesses’ 
incentives to invest and to innovate.  

Significant  progress  has  been  achieved  in  the  integration  of  energy  markets,  but  cross-
border energy trade and competition in energy markets must be improved Entry barriers in 
electricity generation and different rules for electricity retail markets hinder cross-border energy 
trade.  This  situation  entails  important  economic  costs  to  energy  users,  as  well  as  higher  social 
costs  from  the  foregone  opportunities  to  reduce  CO2  emissions  that  the  Energy  Market  Union 
strives to achieve. 

  Ensuring  high  standards  of  environmental  protection  and  product  safety  is  a  major 
component  of  the  performance  of  the  Single  Market  spanning  over  a  broad  range  of 
economic activities.  For example, Single Market legislation has been successful in reinforcing 
the safety of citizens exposed to chemical substances. Ecodesign and Ecolabeling contribute to 

59 

 
 
 
steering process and product innovations towards increasing environmental protection and better 
informed  consumer  choices.  Better  cooperation  with  authorities  in  Member  states  should  help 
ensure a more even environmental performance across all of the Single Market.  

  At  the  core  of  the  Single  Market,  standardisation  plays  a  key  role  to  further  the  EU 
sustainable development agenda. Standards are essential to steer business towards sustainable 
development  goals  as  they  act  as  bridges  linking  legal  provisions  with  on-the-ground  technical 
practice.  The  adoption  of  EU  standards  has  helped  to  achieve  energy  consumption  reduction 
goals  in  the  eco-design  and  ecolabelling  areas.  Standards  also  have  the  potential  to  contribute 
further to enhance product sustainability and the greening of production processes.  

  The Single Market has gone a long way in integrating public procurement across Europe, 
but  the  performance  in  public  procurement  could  still  be  improved.  Transparency  has 
increased,  especially  since  the  introduction  of  e-procurement.  However,  improvements  in 
transparency  have  not  always  been  followed  by  more  discernible  competition  as  measured  for 
instance,  by  the  number  of  tenderers  per  call.  The  EU  has  provided  Member  States  with  the 
necessary  rules  and  guidance  to  make  the  best  out  of  public  procurement  practices,  not just  to 
increase  the  quality  of  public  spending  but  also  to  pursue  other  objectives  such  as  green 
innovation and digitalisation. 

  The  Single  Market  is  contributing  significantly  to  the  digitalisation  of  Europe's  economy 
but  its  lasting  performance  requires  the  reinforcement  and  further  development  of  the 
current  EU-wide  digital ecosystem. The  development  of  an integrated  EU-wide  ecosystem  is 
held back by an insufficient and uneven performance on key digitalization drivers, such as digital 
infrastructure, skills and funding for digital ventures. Member States have a crucial role to play in 
putting these elements into play. 

  EU  financial  services  legislation  helped  resume  integration  of  capital  markets  after  the 
setback resulting from the financial crisis and provided better governance to guarantee the 
stability  of  financial  markets.  Despite  significant  progress,  cross-border  competition  and 
market penetration levels remain relatively low. The Capital Market Union offers the potential to 
reach deeper capital market integration across the EU. 

60